As we go to press, Kerry Co-op looks set to submit an offer of €480m to buy a 60% stake in Kerry Group’s primary dairy business. A fresh sense of urgency was injected into negotiations in recent days with the apparent introduction of an interested third party seeking to acquire the business in its entirety. It is an interesting development given that much of the value of the entity is dependent on having long-term access to a milk supply pool. Whether a solid proposal or otherwise, the presence of a third party will have certainly helped Kerry Group apply additional negotiating pressure.

However, as in any negotiation, it is critical that Kerry Co-op maintains clear judgement. The arrival of a third party and purported valuation it placed on the business is irrelevant. The decision by Kerry Co-op on whether to execute this transaction should be free from emotion and in no way influenced by the fact by that it has the ability to finance the price being asked for the business. It should be firmly rooted in having ascertained a deep understanding of the historic and existing business performance and with a clear view on the challenges and opportunities that lie ahead.

Confidence

In advancing the deal, one of the key tests facing the board of Kerry Co-op will be giving members the confidence that, outside of a team of professional advisers, there is the necessary leadership and business capacity around the co-op board table to assess the business opportunity, judge future performance and develop the strategic vision that will deliver a top milk price to milk suppliers while delivering fair returns to non-milk suppliers. Delivering this will require a very different board skillset than currently required to oversee what has effectively been an investment company.

The scale of the challenge in delivering a leading milk price while returning a shareholder dividend should not be underestimated. As demonstrated by models elsewhere, the ability of what are low-margin primary milk processing operations to deliver a strong milk price and shareholder dividend is limited.

In this week's edition, Lorcan Allen teases out the deal based on what information is currently available. But ultimately the devil will be in the detail. Milk suppliers will be watching closely for any conditions around future margin guarantees for the new joint venture or the 40% shareholder.