Glanbia reveals detail on spin-off of milk processing business

SHARES IN Glanbia rose strongly yesterday as the plc revealed details of a planned spin-off of its milk processing business, Dairy Ingredients Ireland, in a move that may see Glanbia co-op’s shareholding in the listed company dip as low as 41 per cent.

Under the proposed transaction, Glanbia Co-op, which is currently a 54 per cent shareholder in Glanbia plc, will pay €45 million upfront for its 60 per cent interest in the joint venture, with both parties also injecting €29.6 million in fresh equity into the new entity based on their stake in the company. This will bring the co-op’s total investment to €62.3 million.

The co-op will finance this investment in the first instance by selling 3 per cent of its shares in Glanbia, which should generate around €52 million based on the closing price at August 24th, as well as through a loan note from the co-op to the plc of €10.2 million.

In addition, the co-op is proposing to offload an additional 10 per cent of its shares in Glanbia plc, 7 per cent of which would be distributed to co-op members in the form of plc shares, with 3 per cent sold to generate cash for the co-op.

In the event that the second proposal is passed there will be no requirement for the loan note.

Under the 7 per cent share spin- off proposal, Glanbia co-op’s 13,000-plus farmer shareholders stand to receive €122 million worth of plc shares, which they can choose to retain or to sell.

While the first proposal needs 50 per cent shareholder approval from co-op members, the second needs to be passed by 75 per cent of co-op members at two extraordinary meetings.

A previous proposal to demerge the co-op completely from Glanbia plc in 2010 narrowly failed to reach the required threshold of 75 per cent when voted on by co-op shareholders.

Glanbia plc will hold an egm this year to vote on the deal.

The new entity, Glanbia Ingredients Ireland – essentially Glanbia’s Dairy Ingredients Ireland division, which had revenue of €738 million last year – will have net assets of €186 million on completion, comprised of €112 million in working capital and €74 million in net fixed assets, with the €112 million payable to the plc by the new entity on completion.

A pension deficit of €16.3 million will also transfer to Glanbia Ingredients Ireland.

The transaction also includes an option for the co-op to acquire the remaining 40 per cent of the business within six year.

Glanbia’s current head of Dairy Ingredients Ireland, Jim Bergin, will become head of Glanbia Ingredients Ireland.

Speaking in Kilkenny yesterday, Glanbia managing director John Moloney said the deal struck a balance between the interests of the plc and the interests of the co-op, allowing the plc room to focus on its international growth strategy.

Results for the first half of the year published yesterday show that Glanbia’s US cheese and global nutritionals business continued to be the main driver of profit growth.

While it represented 43 per cent of Glanbia’s revenue in the first half of the year, it accounted for 65 per cent of Ebita (earnings before interest, tax and amortisation)

The company increased its earnings per share guidance for the year to between 8 and 10 per cent, up from 5 to 7 per cent.