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On 10 May 2010, Glanbia plc share price was €2.85, the plc’s market CAP was 890m, and the co-op’s 54.6% stake was worth under €500m.
The co-op met to consider the purchase of the entire Irish Glanbia business outright, for 34.6% of their plc shareholding. The Dairy Ireland proposal failed by 80 votes.
Since then, the share price has risen to €18.50, with Glanbia plc worth almost €5.5bn. The co-op’s 36.5% of the plc is valued at €2bn. In the meantime, a 60% stake in GII – the Irish dairy ingredients business – has been purchased, while 31m plc shares have been spun out to co-op shareholders, worth €570m at today’s value.
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It would seem that those who argued against the 2010 proposal to buy Dairy Ireland on the grounds that the timing and the price were wrong have been vindicated, and then some.
Now, Glanbia co-op has the chance to take a 60% stake in the remaining Irish businesses, which would, with GII, create Glanbia Ireland – essentially Dairy Ireland, but as a co-op/plc joint venture.
The cost
The co-op would pay €112m for the 60% stake. The purchase would be funded by the sale of 3% of the co-op’s shareholding of the plc – valued currently at €150m. The money left over (around €40m) would create a new solidarity fund to allow the co-op support shareholder producers. Is now the right time to cash in some Glanbia shares, or should the co-op hold on to them as they continue to rise in price?
What’s being gained?
Owning the majority of Glanbia Ireland means farmers have a direct stake, indeed a controlling one, in the business they do business with. That could be Belview or Ballyragget, the local store, the branded lines of cheese and milk, selling grain, buying feed or fertiliser. There are commitments around the profit expectations of Glanbia, and a permanent revenue stream will be set up from the new entity toward a solidarity fund, so farmers won’t have to asset – strip the co-op to support milk and grain price in future troughs.
What’s being lost?
Apart from the reduced shareholding, there is the loss of a further seat on the board in 2022. This means by then only six of the 14 co-op board will sit on the plc. This could be viewed two ways – it reduces the farmer influence on management, and makes it more likely that a co-op nominee will not chair the plc. Against that, a majority of the co-op board will no longer be constrained by fiduciary duties and can focus on the needs of co-op shareholders. It is likely all the co-op board will sit on the board of the Glanbia Ireland JV.
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The strategy
This weds the co-op utterly to Glanbia plc. Is it a missed opportunity for the co-op to put some of its eggs in another basket? Against that, Glanbia plc has been the golden egg of Irish agribusiness for a decade now; why change a winning formula?
The dry shareholder
What of the co-op member who is not a dairy farmer? Most aren’t, and they might feel chips in a high-margin business are being cashed to buy a lower-margin division of the same company. When put like that, it sounds like a bad buy, but Glanbia management’s strategy has grown the company, and the value of co-op shares, eightfold since 2010. Is now the right time to make a purchase?
The spin-out
The linked proposal to share €100m of the co-op’s wealth among the shareholders through the spin-out of 2% of plc shares is going to tempt all but the most sceptical. It’s hard to turn down money – even your own money.
SHARING OPTIONS: