Editorial: valuation of Glanbia assets does not determine success

The announcement that – subject to shareholder approval – Glanbia Co-op is to take 100% control of Glanbia Ireland has attracted much discussion in recent weeks, even if the necessary documentation is not yet with shareholders.

Naturally attention has focused initially on the valuation of the company and the subsequent price tag placed on the plc’s 40% shareholding.

While valuations are important, the success of an acquisition strategy is not determined by the value at which assets are purchased. The exception being where the new purchaser plans to sell the business within a short timeframe, which is not the case here.

The decision of the farmers to acquire a 100% shareholding in Glanbia Ireland is clearly a long-term strategic play by the co-op. In this situation, the value at which the business is acquired has a greatly reduced influence on whether or not the deal is successful. What will determine success of the acquisition is the ability of management and the board to utilise the assets acquired to generate future value for the shareholding membership.

There are clearly scars of the past in this regard. Until this year, the board and management had delivered on their commitment to invest in the necessary milk-processing capacity to facilitate rapid expansion at farm level while also delivering a profit after tax margin of 3.2%. However, they failed to deliver this while also returning a competitive milk price back to farmers.

It is therefore natural and right that some farmers are approaching this buyout with a level of scepticism and caution. But in doing so consideration should be given to the new environment in which the business will be operating. It will be one in which management will have no excuses. The fixed financial discipline measures will be gone and the level of investment in future processing capacity normalised.

It is not unreasonable for farmers to ask for a business plan for the dairy business or to ask for a threshold return on the investment fund.

Brand-specific prescriptions

Reports that prescriptions issued by vets from early next year will be brand-specific without the scope to substitute with generic products is a major development. In the absence of proper oversight, it could fundamentally shift the role of vets, with the potential to further commercialise the prescribing of medicines.

If a brand-specific prescription model is to be implemented, it must be aligned to the introduction of increased regulation to oversee the commercial relationships between vets and pharmaceutical companies.

The Department of Agriculture must ensure vets are not commercially incentivised to stock and prescribe one product over another.

Meanwhile, in the context of improving animal health and the responsible administration of animal remedies, the benefit of going down a brand-specific prescription model must be fully outlined by the Department of Agriculture in advance.

Ballybay Mart: oversight roles cannot be overlooked

While we certainly hope Ballybay Mart can trade out of difficulties, there are lessons for farmers and co-ops across the country. Board directors and mart committees are responsible positions and governance is important.

Mart and co-op turnovers can run into millions and billions and the oversight role these farmer directors hold deserves recognition and responsibility, but also any necessary training or upskilling that is required.

The day-to-day operations need to be left to management and the directors need to focus on governance and ensuring the mart is on a sound footing legally and financially – and is delivering for its members.