Plan may be only start of divergence

ANALYSIS:GLANBIA UNVEILED details yesterday of its joint-venture proposal with 54 per cent shareholder Glanbia Co-op, which was first announced in June. But the real story goes back further.

Yesterday’s announcement should be seen in the context of the 2010 proposal to de-merge Glanbia Co-op completely from the plc. While it was narrowly defeated by co-op shareholders, it exposed the conundrum at the heart of a company trying to balance two different agendas – that of farmer producers, and that of the plc and its shareholders, who were increasingly focused on international growth.

The solution now being offered is possibly the best outcome.

In many ways, the proposal is a refinement of the 2010 deal. The original proposal would have seen the co-op take control of Glanbia’s Dairy Ireland division – its dairy ingredients, agri-business and consumer foods business. Under the new proposal, the co-op takes a controlling interest only in the dairy ingredients – that is, the milk processing business – and only a 60 per cent interest at that.

The new proposal may prove more attractive to co-op members. It will allow the co-op to share the risk and investment in Glanbia’s milk-processing business with the plc, while still retaining a hefty 41 per cent stake in a company that has been performing exceptionally well. Plus there’s the sweetener of a €122 million windfall for farmer co-op members via the proposed 7 per cent share spin-out of plc shares to the co-op’s members.

All of this is, of course, subject to shareholder approval. A 75 per cent threshold is always a challenge. But the larger question will be whether this is only the start of the divergence between the two parties. Once Glanbia Co-op dips below the critical 50 per cent shareholding, the possibility of selling off more of its shares in Glanbia plc will continue to present itself, particularly if the co-op thinks it makes sense to acquire other parts of the plc’s businesses such as agri-business.

Kerry Co-op, for example, has been gradually reducing its shareholding in its partner plc over the past few years.

As John Moloney pointed out yesterday, when Glanbia as an entity was created, milk quotas had recently been introduced. The fact this cap will be lifted in 2015 means the game has now changed. Perhaps it’s time to re-think the corporate structure of Glanbia to see if there are better ways of serving the needs of both dairy farmers and investors.