Co-ops to cut stake in IAWS from 56% to 44% in historic move

THE Irish Agricultural Wholesale Society has confirmed that it is to reduce its share holding in food group IAWS to below 51 per cent. This will be achieved through a straight transfer of shares to the 50 plus co-ops which own the society. No new IAWS shares will be issued.

The society is to transfer 12.1 million shares, currently worth £18.3 million, to its shareholders, a move that will reduce the society's interest in IAWS from around 55 per cent to 44 per cent.

This is the first time any co-operative has reduced its stake in a plc which operates its business to below 51 per cent, and represents a water shed for the co-operative movement.

Kerry Co-op is close to finalising proposals on a similar move to take its share holding in Kerry Group plc to below 51 per cent. These proposals are likely to be submitted to special meetings of Kerry Co-op shareholders later this year and lead to a direct transfer of Kerry Co-op shares to the co-op's shareholders in mid 1997.

Industry sources believe that ultimately the other major co-ops with plc subsidiaries Avonmore Waterford and possibly Golden Vale will adopt a similar route as co-op shareholders look to unlock some of the value of the co-ops share holdings in the various plcs.

Such moves will also allow the plcs to raise equity funding for acquisitions most of the plcs are restricted in the amount of money they can raise from the market by the requirement that the co-op share holding in the plc must not fall below 51 per cent.

In the case of the Irish Agricultural Wholesale Society, whose plans to go below 51 per cent were reported exclusively in The Irish Times yesterday, the 51 per cent share holding floor will be replaced by a 30 per cent floor a move that, will give IAWS the option of fund future acquisitions through share issues.

Since IAWS became a public company eight years ago, most of its £75 million worth of acquisitions have been funded from borrowings with very little equity content. IAWS has a very strong cash flow which has allowed it to pay down debt very quickly, and there is no guarantee that reducing the society's minimum share holding from 51 per cent to 30 per cent will automatically result in equity fund raising.

When interest rates are low, it usually costs less to borrow money than to raise equity. "It does, however, give us additional options," said one source close to the IAWS board.

It is thought likely that Kerry Coop will also specify a minimum share holding of 30-35 per cent in Kerry Group when it goes below 51 per cent in mid 1997. Kerry chief executive Mr Denis Brosnan has said publicly that he would expect a sizeable minority share holding in Kerry group to be held within the county when the restructuring goes through.

IAWS chief executive Mr Philip Lynch said "The society's proposals are fundamentally in the long term interest of IAWS Group plc. The support of the society has always been central to the success of the plc. For many years, the society received reduced dividends to facilitate the development of the plc. These proposals would now make the benefits of the growth and development more directly available to shareholders in the society."

It is understood that the 12.1 million shares being transferred from the society to its shareholders will be transferred into a structured nominee company. This is a "stabilisation" move aimed at presenting large amounts of shares coming on to the market following the transfer. In effect, it will allow society shareholders who wish to sell shares to have them placed in the market rather than putting them up for sale themselves.

The transfer of the shares and the move below 51 per cent will require the approval of two separate general meetings of society shareholders. The first of these on May 28th will require 75 per cent approval from the 50 plus shareholders while the second meeting on June 12th will require 50 per cent approval.

While the co-ops who own the society have share holdings of varying sizes, voting on the transfer will be based on the established co-op principle of one shareholder, one vote. This means that dairy giants such as Kerry, Avonmore, Waterford, Golden Vale and Dairygold will have exactly the same voting power as the smallest co-op in the country a single vote.

The restructuring of IAWS was welcomed in the market as a move that will provide greater liquidity to the shares and also provide IAWS with another option when it comes to funding acquisitions or capital expenditure. The shares were unchanged on 152p an all time high.