From a Kerry Group perspective, the obvious benefit of this proposed joint venture deal is that it will allow it to realise a significant cash windfall from its primary dairy processing assets to give it additional firepower for new acquisitions in the high-margin, fast-growth area of taste and nutrition.
Just over a year ago, Kerry Group came within inches of pulling off the biggest deal in its history when it narrowly lost out on acquiring the nutrition division of US multinational DuPont.
Speaking to the Irish Farmers Journal this week, equity analyst at Goodbody stockbrokers Jason Molins said there are limited “transformational” deals available to Kerry Group right now that are similar in size to the DuPont merger.
However, Molins said Kerry Group will continue to make acquisitions in its product portfolio, new technologies and to increase its global reach to new customers and markets.
Interestingly, Molins says there is mounting interest from institutional investors about the proposed joint venture deal between Kerry Group and Kerry Co-op.
“I’ve had more discussions on Kerry Group in the past three months than I’ve had in the past three years,” said Molins.
“Firstly, investors are looking to understand the mechanics around the possible deal, but also to understand the implications for Kerry Co-op’s c.12% shareholding in Kerry Group. What investors are most interested in at the moment is how much is required to fund the deal and what happens to the remaining stock,” he added.
If the joint venture deal for the primary dairy business goes ahead, Molins estimates that Kerry Group’s remaining consumer foods business will have c.€900m of sales and c.€65m of profit. Based on businesses with similar operations, this remaining business could be worth in the region of €500m to €650m.
Molins believes it could be hard for Kerry Group to sell this remaining business in its entirety so it could be likely that the consumer foods business could be hived off in tranches rather than as a whole.