The historic joint venture deal between Kerry Group and Kerry Co-op hangs in the balance after a crucial week of back and forth between the two sides.

After months of stalled negotiations, there is now a real sense of urgency in Kerry that there is only a matter of weeks left in order to get agreement on a deal.

As revealed by the Irish Farmers Journal earlier this year, Kerry milk suppliers are being offered the opportunity to buy a 60% stake in Kerry Group’s primary dairy business, which is understood to have annual sales of €1.2bn and makes profits of €80m to €100m per year.

Last week, Kerry Group CEO Edmond Scanlon addressed the board of Kerry Co-op via a video conference call where he said a valuation of no less than €800m could be accepted for its primary dairy business because of strict stock market rules around selling assets to related parties.

A price tag of €800m values Kerry Group’s primary dairy business at roughly 10 times earnings. If a deal was to go ahead at this valuation, farmer milk suppliers would have to invest about €480m for a 60% majority stake in the business.

Valuation

The Irish Farmers Journal understands that Kerry Co-op, along with its advisers PWC, had previously made an informal offer that values the primary dairy business at €640m. At this valuation, farmer milk suppliers would have had to invest about €385m for a 60% stake in the business.

However, Scanlon was resolute that both sides were legally obligated to agree on a fair and accurate valuation for the business.

It is believed the board of Kerry Co-op has accepted this and is seeking to hire a UK firm to give a second opinion to that of PWC on the valuation of Kerry Group’s primary dairy business.

While there may be very little room to negotiate on the valuation of the business, the Irish Farmers Journal understands Edmond Scanlon has intimated to the board of Kerry Co-op that he is prepared to offer another goodwill payment to farmer milk suppliers.

It is believed Kerry Group may be prepared to pay out up to €120m in a once-off payment to farmers in order to settle the so-called “leading milk price” issue once and for all. Based on Kerry Group’s milk pool, this would equate to a once-off goodwill payment in the region of 8c/l to 10c/l for farmers.

However, this goodwill payment would be conditional on both sides agreeing a deal on the joint venture.

Payment

Back in January, Kerry Group made a 3c/l goodwill payment to milk suppliers following the arbitration ruling in September on the “leading milk price” dispute. Many Kerry milk suppliers feel they are owed further top-ups following the arbitration ruling, which stated that the four west Cork co-ops should be included in determining the “leading milk price” on a like-for-like basis.

At a crucial board meeting this week, the various factions within the board of Kerry Co-op failed to agree on a decisive next step and little progress was made.

The Irish Farmers Journal understands Edmond Scanlon told the board of Kerry Co-op last week that time is running out to agree a deal, and warned that Kerry Group would begin engaging with other parties interested in buying the business if the negotiations did not begin to move forward.

It is understood Scanlon also told the meeting that Kerry Group needed to see a detailed plan of how Kerry Co-op planned to fund its stake in the joint venture.