Kerry Group has hired Bank of America Merrill Lynch to advise on the future of its consumer foods business, which may see its chilled meat and convenience meals business sold and dairy products operation spun off into a joint venture with its main shareholder, Kerry Co-op, according to sources.
Bloomberg reported on Friday that Kerry Group was considering strategic options for its legacy consumer food business for "billions of euro", in a move that could free up money for acquisitions in its largest and fast-growing division, Taste & Nutrition (T&N). Shares in Kerry Group rose 3.3 per cent to €121.50.
However, the company was already known to be in talks for months to sell a 60 per cent share in its dairy business to members of Kerry Co-op, which owns 12.5 per cent of Dublin-listed Kerry Group that is worth €2.66 billion, based on the current share price.
Goodbody Stockbrokers analyst Jason Molins said in September the Co-op would likely sell down some of its stake in Kerry Group to finance such a transaction.
A sale of the Consumer Foods businesses “would make strategic sense, freeing up significant funds to invest behind the core T&N division whilst also improving the growth and margin profile of the group”, said Mr Molins, reacting to the latest development on Friday.
The dairy part of Consumer Foods includes three state-of-the-art manufacturing facilities in Ireland, where over one billion litres, or 20 per cent of the total Irish milk pool, are processed annually. Its brands include Dairygold, Denny and EasiSingles cheese slices.
The meat business includes labels such as Denny and Galtee. It also has ranges of frozen and chilled meals.
A disposal would help raise funds for Kerry Group to expand its main food ingredients business through mergers and acquisitions (M&A). Kerry Group, which makes flavours and sweeteners, has a "strong" pipeline of potential takeover targets, chief executive Edmond Scanlon said on a November conference call.
It was one of the bidders for US chemical group DuPont’s nutrition arm last year before losing out to International Flavors and Fragrances, which offered $26.2 billion (€21.4 billion) for the business.
"Kerry has a strong track record of shareholder value creation through more than two decades of bolt-on M&A," said Alex Sloane, an analyst at Barclays. "We like that Kerry has flexibility to potentially add selected ingredient technologies that it can use its global footprint to scale."
A spokesman for Kerry Group said the company does not comment on “rumours or speculation”. A spokeswoman for Bank of America Merrill Lynch also declined to comment.
Revenue from Kerry’s consumer foods division fell 2 per cent last year to €1.3 billion. It accounted for 18 per cent of the group’s sales.
The company said last month that its business volumes fell 4.7 per cent group-wide in the nine months to September 30th, as a result of the Covid-19 crisis. Still volumes rallied during the third quarter, to be down 2.1 per cent on the year, amid a general relaxation of pandemic restrictions globally at the time.
– Additional reporting, Bloomberg