The board of Kerry Co-op is to hold a crucial meeting on Monday evening to decide if it will proceed with a €800m joint venture deal with Kerry Group plc.

It’s understood the board meeting of Kerry Co-op will begin at 4pm on Monday and is likely to last a number of hours.

Board members of the co-op will have to decide whether to go ahead with a historic joint venture deal with Kerry Group plc where farmer milk suppliers are being offered the opportunity to buy a 60% stake in Kerry Group’s primary dairy business.

This business is understood to have annual sales of €1.2bn and makes profits of €80m to €100m per year.

Although negotiations have been ongoing between the Kerry Co-op and Kerry Group over this potential joint venture for most of 2020, both sides have so far failed to agree on a valuation for the business.

Advisers

The Irish Farmers Journal understands that Kerry Co-op, along with its advisers in PWC, has made an informal offer that values this business at €640m.

At this valuation, farmer milk suppliers would have to invest about €385m for a 60% stake in the business.

Kerry Group CEO Edmond Scanlon. / Philip Doyle

However, it’s understood Kerry Group CEO Edmond Scanlon addressed the board of Kerry Co-op last week on a video conference call and told the co-op board the business could be valued at no less than €800m, which is a valuation of roughly 10 times earnings.

In this scenario, farmer milk suppliers would have to invest about €480m for a 60% stake in the business.

The Irish Farmers Journal understands Scanlon told the Kerry Co-op board that €800m was the only valuation that would be acceptable to the market, as Kerry Group is governed by strict stock market rules when it comes to selling assets.

Scanlon added that time was running out for Kerry Group and Kerry Co-op to agree a deal on this proposed joint venture and warned that Kerry Group would have to begin engaging with other parties interested in buying the business if the negotiations did not begin to move forward.

Proposal

It’s understood that Scanlon told the board of Kerry Co-op that in order for the proposed joint venture to proceed, it would need to agree to the €800m, but it would also need to show a detailed plan of how it planned to fund this investment.

Following this intervention by Scanlon, the board of Kerry Co-op has decided to meet again on Monday this week to determine how it will proceed.

Monday evening’s board meeting of Kerry Co-op could be historic, as this opportunity is not likely to come around again for Kerry milk suppliers.

If they agree to proceed with the joint venture on the terms outlined by Scanlon, then a formal deal could be announced early in the new year.

However, if they decide not to proceed, then Kerry Group is likely to walk away from the table and begin negotiations with other interested buyers.