Kerry move surprises food industry

Kerry Group took the food industry by surprise yesterday saying it was prepared to offer #1.37 a share for the entire share-holding in Golden Vale plc, valuing the Co Cork food company at #214 million.

The offer was made in writing to the board of Golden Vale, which rejected it, as might have been expected. The board described the approach as inadequate and said it failed to recognise either the underlying value or the potential of the company.

Under the terms of the proposed offer, Kerry would exchange one new Kerry Group plc share for every 10 Golden Vale plc shares with a cash alternative of #1.37 a share. In addition Golden Vale milk suppliers would be paid the Kerry price for milk, less any collection charges already in place.

The annual general meeting of Golden Vale takes place in Limerick today and farmers plan a picket as part of their ongoing protest about the price Golden Vale pays for milk.

The offer, which has been welcomed by farm organisations, would, if successful, give the enlarged group a combined milk pool of 230 million gallons, 110 million from Kerry and the remainder from Golden Vale, and would lead to rationalisation of milk processing in the region.

Golden Vale shares rose 40 cents to close to #1.47 following the announcement.

Shares in dairy companies are regarded as undervalued and analysts believe this move will highlight the fact. The move makes a lot of sense for Kerry and industry sources point out that this is a relatively small deal for the group, equal to around 10 to 15 per cent of Kerry's capitalisation.

Golden Vale has been taciturn about the offer and adds only that a further statement will be made "as and when appropriate".

Kerry said it considered the offer to be fair and reasonable and would provide an opportunity for shareholders in both groups to benefit from the enhanced shareholder value in Kerry Group. By combining these two consumer foods businesses, significant synergies would accrue, in particular in the areas of convenience foods, prepared meals, dairy and low-fat spreads, cheese, liquid milk and food service products.

A meeting between the boards of the two companies will probably take place within a week. A formal offer would then be made to the shareholders in both groups.

Kerry Group, which had sales of #2.6 billion last year, dwarfs Golden Value, whose turnover was #759 million. Mr Denis Brosnan, Kerry's group managing director, said the offer, if approved, would lead not just to the rationalisation of milk processing, but to cost savings and greater efficiencies. Kerry, since it went public, has become one of the world's leading food ingredients companies, with about 75 per cent of its operations now outside Ireland. It employs 15,000 people world-wide, 3,000 of them in Ireland. Consumer foods constitute about one-third of its total business and it has a very strong position in the UK and Ireland.