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The Irish Farmers Journal understands that at last Friday’s Ornua board meeting, the board was presented with a proposal from Dairygold that would see Ornua restructure into an unlisted plc.
Importantly for farmers, the proposal outlines that Ornua, which is currently a co-op would remain in exclusive ownership of the member dairy co-ops and dairy farmers.
It is understood that Dairygold, which holds around 20% in Ornua, was concerned with the conflicts at board level which related to governance and the structure of the Ornua board.
US market
These conflicts came to a head towards the end of last year after Glanbia announced it was launching its own Truly Grass Fed brand into the US.
Despite Glanbia stating it would grow the market in the US, it was seen by many as a direct competitor to Ornua’s Kerrygold brand in that market.
It led to many board members having to step out for elements of board meetings due to potential conflicts of interest.
While the Glanbia move is not the sole reason for the shake-up, no doubt it was the catalyst for the board to initiate a complete governance review.
This review process, which was headed up by the then chair Aaron Forde, was initiated late last year.
However, a solution has not been found six months on.
At last month’s board meeting, Ornua chair Aaron Forde stepped down and was replaced by independent chair Denis Cregan.
Deloitte was also appointed by the Ornua board to find a solution around the governance issues.
Moving forward
At the same time, over the last number of months it is understood that Dairygold took matters into its owns hands and engaged corporate finance firm Goodbody and legal experts McCann Fitzgerald, along with Deloitte in Cork from a tax viewpoint, to identify a model to move the process forward.
It is believed that Dairygold was concerned around the progress of the governance review and that it may have been “choking the business”.
It is understood that a number of meetings were held last week by senior officials in the dairy industry to try to find a path forward.
It is also understood that the board is now considering the proposal in greater detail and that co-op members have been asked to communicate to their own boards around the proposals.
What is being proposed?
There are a number of key elements in the proposal that are important.
Firstly, listing as an unlisted plc is different to the path that Kerry or Glanbia took in the past when they floated on the stock exchange and listed as a full plc.
An unlisted plc is not on a public stock exchange, but its shares can be traded on an internal share trading mechanism solely for co-ops and farmers.
The proposal outlines that 80% of the newly formed Ornua plc will be owned by Ornua’s existing dairy co-op members.
It is understood this will be given out based on their current shareholding in Ornua.
For example, Glanbia owns around 25% of Ornua today, with Dairygold owning a further 20%.
Other processors such as Lakeland, Arrabawn, the west Cork co-ops and Aurivo also hold significant shareholdings.
Ornua stake
In total, there are around 30 co-ops that hold some stake in Ornua.
The proposal uses the 2018 balance sheet of Ornua to value the business.
Based on the 2018 accounts, Ornua is valued at €520m.
It is proposed that the 80% or €416m would be given to the member co-ops.
It would give dairy farmers an ownership value of up to 2c per litre based on their 2018 milk supply
Dairy farmers are set to get the other 20%, valued at circa €104m.
It is estimated that around 13,500 dairy farmers would be eligible for the spin-out.
Dairy farmers who supply Kerry Group would not be entitled, as Kerry left Ornua a number of years ago.
It is estimated that the shareholding would be worth €7,500 on average to dairy farmers.
However, according to sources in the dairy industry, the proposal goes further and outlines it would give dairy farmers an ownership value of up to 2c per litre based on their 2018 milk supply.
That would mean a 100-cow dairy farmer supplying 500,000 litres would receive shares to the value of €10,000.
The proposal also advises the setting up of an advisory council and a separate new board of the unlisted plc.
Stay tuned to farmersjournal.ie for more updates.
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