Kerry Co-op information paper on KDI proposal pushes hard for yes vote

On Thursday morning (5 December), shareholders of Kerry Co-op will receive a substantial letter from their society in the post outlining some more of the details of the proposed takeover of Kerry Dairy Ireland (KDI).

The eight pages given over to the key provisions of the proposed transaction is substantially identical to the publication released to Kerry Group shareholders on 25 November.

In fact, when it came to actual information, there is nothing substantially new in the co-op paper.

There were hopes that there might be further clarity on the EBITDA levels which would need to be maintained by KDI through the end of 2025, but that was not forthcoming.

The co-op paper did give an update on the financial performance of KDI for the first six months of 2024, putting the EBITDA for the period at €35m, a 20% increase on the same period in 2023.

The big difference between the two documents came in how the deal is presented. Nowhere in the letter from the chair of the society - which makes up the first 12 pages of the paper - is there a breakdown of the risks to shareholders from the deal.

In fact, there is hardly any acknowledgement of risk at all in the document. This even goes as far as one of the items listed in the section titled 'Summary of benefits of the proposed transaction' being:

(d) Society Members will directly benefit from any increase in Kerry Group’s share price through Kerry Group Shares retained by them.

There is no point E, which states that society members will directly be disadvantaged from any decrease in Kerry Group’s share price.

The omission of this (obvious) point is both by design - the board of the co-op want shareholders to back the plan - and due to regulatory differences between how co-ops are regulated and how other companies owned by shareholders are regulated.

Listed companies have a legal obligation to be transparent to shareholders on both the potential risks, as well as the rewards from any proposal. The co-op is governed under legislation written more than a century ago and so has fewer such obligations.

This difference in obligations can be seen in the Kerry Group paper, which has nine items listed on a full page under the title 'Risks and other conditions to the proposed transaction'. It lists:

Very interestingly, it also lists a risk about Kerry Group’s ability to sell on KDI if this deal does not proceed. It states:

"If the proposed transaction does not complete, the subsequent value of the Kerry Dairy Ireland business may be lower than can be realised by way of the proposed transaction and there would be no assurance that Kerry would be able to dispose of the Kerry Dairy Ireland business at a later date, in more favourable or equivalent market conditions."

The final point in the Kerry Co-op chair’s letter is that the current proposal will “likely represent the final opportunity for the society to acquire Kerry Dairy Ireland given Kerry Group’s current strategic direction”.

Both letters from Kerry Co-op chair James Tangney and Kerry Group chair Tom Moran say that they and their respective boards recommend that shareholders of each organisation vote to back the proposal on 16 December (for Kerry Co-op) and 19 December (for Kerry Group).