Kerry Group plc's largest shareholder, Kerry Co-op, is considering raising as little as a €240 million sale of shares in the publicly-quoted food giant to fund its participation in a €800 million dairy business joint venture between both sides, according to sources.
Kerry Co-op owns a 12.3 per cent stake in Kerry Group, which is worth €2.46 billion based on the group’s market capitalisation of more than €20 billion. The sale of about a 1.2 per cent stake would raise €240 million, based on the plc’s current share price.
The Co-op, whose shareholders include farmers that sell milk to Kerry Group's processing plants, a large number of former suppliers, and parties that would have acquired stock on a grey market, has been in talks for some months on taking a controlling 60 per cent stake in the manufacturing facilities and brands including Dairygold, Charleville and Kerry Low-Low spreads.
The talks have moved up a gear in recent weeks, since it emerged that an unnamed overseas player is also circling the business, pushing the value on the venture up to €800 million. Previously, negotiations had centred around a total value of €640 million for the joint venture.
A board decision on Wednesday by the Co-op, led by chairman Mundy Hayes, to proceed with a bid for a 60 per cent stake in a joint venture would cost €480 million.
However, sources familiar with the process said that a plan under consideration would involve the Co-op only raising half of this amount through a sale of Kerry Group shares, with debt and other funding sources making up the remainder.
It is envisaged that only the farmers currently supplying milk to Kerry Group will be shareholders in the dairy joint venture.
This would see legacy shareholders in Kerry Co-op take a hit as some of their indirect Kerry Group stake is used to fund a joint venture in which they will have no equity interest.
However, a planned trade-off would result in Co-op distributing its remaining Kerry Group shares to its own stockholders. Every Co-op share is currently worth about six shares in the publicly-traded company.
While this would trigger capital gains taxes, the Irish Farmers Journal has reported that the legacy shareholders may be offered an option of receiving Kerry Group shares, plus cash, to settle tax bills under an arrangement that has been discussed with the Revenue Commissioners.
Mr Hayes did not respond to efforts to secure comment. A spokesman for Kerry Group declined to comment.
Separately, Kerry Group is also seeking to sell its chilled meats and convenience meals business, which is said to have attracted both trade and private equity interest.
The Irish Times reported in December that Bank of America was advising Kerry Group on plans to offload the dairy processing and products business as well as the chilled meat and convenience meals unit.
This would see the group exit the low-margin consumer foods business, save for a minority dairy holding, and free up money for acquisitions in its largest and fast-growing division, Taste & Nutrition (T&N).