The results of the vote at Wednesday’s special general meeting (SGM) of Kerry Co-op have caused significant confusion for many shareholders. The Irish Farmers Journal assesses the voting results and explains what happens next for the co-op.

What happened?

Firstly, shareholders in Kerry Co-op were asked to vote on two key motions. This first item which shareholders were asked to vote on was a proposed change to the co-op’s rule book, which would allow Kerry Co-op to sell down its shareholding in Kerry Group plc below 10%. The co-op currently owns 13.7% of the shares in Kerry Group, which have a value of €2.6bn.

This proposed rule change needed a simple majority and was passed comfortably with 63% of shareholders voting in favour.

The second item on the agenda – which was by far the most contentious – was a resolution seeking to introduce a new rule to the co-op rulebook that would ring-fence 96.5% of Kerry Group plc shares held by the co-op for redemption though the current or future "cash for shares" schemes.

This was the first time in Kerry Co-op’s near 50-year history that a resolution put to members by the co-op’s board has been rejected by shareholders

In simple terms, this resolution from the board was seeking to lock-in, or ring-fence, almost all the co-ops shares in Kerry Group plc for use in a single liquidity mechanism – the share redemption scheme.

This resolution was fiercely opposed by the Shareholders Alliance group, which claimed the board of Kerry Co-op were seeking a mandate from shareholders to use co-op funds outside the ring-fenced amount to buy assets and return to being a trading co-op.

This resolution required a two-thirds majority to pass and was narrowly defeated by just 17 votes at the SGM. This was the first time in Kerry Co-op’s near 50-year history that a resolution put to members by the co-op’s board has been rejected by shareholders.

What does it mean?

Although the second resolution was narrowly defeated, the board of Kerry Co-op can still push ahead with its share redemption scheme. Under rule 68 of the co-op’s rulebook, the board of Kerry Co-op has the discretion to redeem or cancel shares in the co-op at any time.

In other words, the board of Kerry Co-op did not need shareholder approval to establish a share redemption scheme and the new scheme will go ahead. The scheme is voluntary in nature but will give shareholders the opportunity to redeem their shares for cash in two windows (May and November) every year.

The rule change allowing Kerry co-op to sell down its shareholding in Kerry Group plc below 10% was important as it allows the board of Kerry Co-op to fund share redemption schemes long into the future.

Mundy Hayes, chair of Kerry Co-op.

Mundy Hayes, chair of Kerry Co-op, said he was very pleased with the result of Wednesday’s SGM, which would allow the cash for shares scheme to proceed.

“We are even more pleased by the high level of applications from members, a five-fold increase on our original expectations. The level of applications is a ringing endorsement of the share redemption scheme,” added Hayes.

Kerry Co-op received almost 1,500 applications earlier this month for its first window of the share redemption scheme. This means more than 10% of all the shareholders in Kerry Co-op applied to redeem shares under the scheme, indicating there is a significant appetite among members to liquidate their shares. The co-op had estimated it would receive around 300 applications prior to announcing the scheme.

What next?

Kerry Co-op will now process all 1,500-odd applications for its share redemption scheme and distribute cash payments to members accordingly. The next window for the share redemption scheme will open later this year in November.

However, the defeat of the second resolution is important as it means the co-op’s shares in Kerry Group plc are not ring-fenced for a single purpose or use. As a result, the Shareholders Alliance has said it will be calling on the board of Kerry Co-op to explore other mechanisms for liquidating shares that would create a capital gains tax (CGT), as opposed to the income tax event created by the current share redemption scheme.