Kerry Group suspends talks with co-op over sale of assets

Kerry Group has suspended talks with its main shareholder, Kerry Co-op, about the possible sale of its dairy and consumer foods business in Ireland.

The company had been in discussions with the co-op about a potential transaction, which would have seen the legacy business, which includes the popular Dairygold, Charleville and Denny brands, spun out in a joint venture with the co-op.

However, those talks appear to have broken down. While the company declined to comment specifically on the reason for the suspension in talks there was speculation that the co-op’s bid, which is said to have valued the joint venture at €600 million, was below the company’s expectations.

Both sides were also said to have disagreed on several issues relating to dividends and financing.

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The deal would have seen the co-op take a 60 per cent share in the joint venture with the plc retaining the remaining 40 per cent.

Industry sources said the chances of the talks being resurrected were extremely slim.

In a statement, Kerry Group said it had been conducting a strategic review of its dairy-related businesses in Ireland and the UK.

“As part of the strategic review, Kerry Group plc confirms that discussions with Kerry Co-Operative Creameries Limited in relation to a potential transaction have been suspended,” it said.

“While the strategic review continues, there is no certainty that this will lead to a transaction and a further update on the strategic review process will be communicated later this year,” it said.

In a statement of its own, the co-op noted the company’s decision to suspected discussions.

“With the prime focus of protecting the interests of, and delivering for all its stakeholders, the co-op, over the past 18 months, engaged in a thoroughly professional approach to give this potential opportunity every possibility of success. We believe a fair valuation was put on the proposed transaction,” it said.

Kerry’s strategic review, announced in February, related to its dairy production and consumer food businesses here and in the UK.

The assets included Kerry’s primary milk processing business, several dairy-related foods brands and the company’s network of agribusiness stores here.

In its most recent set of results, Kerry said the assets had an annual turnover of about €900 million. Both sides had been in talks about a possible deal for several months.

Market capitalisation

The plan would have involved the co-op raising money via the sale of Kerry Group shares. It currently owns a 12.3 per cent stake in Kerry Group, which is worth €2.4 billion based on the group’s current market capitalisation.

Kerry Group shares rose marginally to €109.75 on Dublin’s Iseq on Thursday but news of the breakdown in talks arrived after trading hours.

“In recent days there had been increased speculation of discontent within the Kerry Co-op around the possible transaction,” said Goodbody analyst Jason Molins.

“In addition, various reports suggested that a bid of circa €700 million from Kerry Co-op was indeed below expectations,” he said.

“We have written extensively in the past few months on the possible joint venture deal and held the view that it would have been a positive outcome for Kerry Group,” said Mr Molins.

“Aside from realising healthy proceeds for its dairy assets, it would have enabled Kerry Group to entirely focus its attention on the higher growth and higher margin Taste and Nutrition business. It remains to be seen whether another buyer steps forward over the coming months,” he added.