Kerry Co-op is exploring various options to raise money from farmer milk suppliers in order to fund the proposed joint venture in Kerry Group’s primary dairy business, the Irish Farmers Journal can reveal.
Speculation over recent days suggests farmers may be asked to contribute up to €180m in order to help finance the joint venture deal.
However, a number of Kerry Co-op board members have told the Irish Farmers Journal this week that no proposal for farmers to put forward €180m, or any business plan for repayment of this funding, has been agreed or signed off on.
If a farmer funding approach is agreed the options to raise a large sum of money include a requirement to “share-up” in the new joint venture, setting aside a portion of the leading milk price settlement or a contribution from farmers to a revolving fund.
The “share-up” option would potentially require Kerry milk suppliers to contribute anywhere between 10c/l and 15c/l over a 10-year period. Depending on farm profits, that could be doable for Kerry milk suppliers.
The average milk supplier in Kerry produces about 450,000 litres of milk every year
This “share-up” option would mean a deduction of 1c/l to 1.5c/l from a farmer’s annual milk price for 10 years, which would raise €145m to €215m, depending on the level the share-up requirement is set at.
The average milk supplier in Kerry produces about 450,000 litres of milk every year. This means the average supplier would be asked to contribute between €45,000 and €68,000 to fund the joint venture spread out over 10 years.
Alternatively, it’s envisaged that farmer milk suppliers with shares in Kerry Co-op could use a portion of these assets as their contribution to the joint venture. For example, the average Kerry milk supplier is understood to have 450 shares in Kerry Co-op.
Of course, there are many Kerry milk suppliers who have very few shares in Kerry Co-op, meaning the milk price deduction would be the only option open to them
In this scenario, the farmers could use around 100 of their Kerry Co-op shares to cover their required contribution to fund the joint venture. Of course, there are many Kerry milk suppliers who have very few shares in Kerry Co-op, meaning the milk price deduction would be the only option open to them.
The second option that has been mooted over recent days is the possibility of milk suppliers contributing to a revolving fund. In this scenario, farmers, and potentially Kerry staff members, would contribute money to a revolving fund but would get their cash investment back with interest after a set period of time.
The first repayment tranches from this fund were made to Dairygold suppliers last year
In nearby Cork, Dairygold Co-op used a revolving fund from 2013 to 2019 and raised almost €24m from farmer suppliers to help fund its capacity expansion programme. The first repayment tranches from this fund were made to Dairygold suppliers last year.
Despite the continued speculation about the details of the Kerry joint venture, a number of board directors in Kerry Co-op have confirmed to the Irish Farmers Journal that no firm details on farmer funding options has yet been proposed or agreed by the main board of Kerry Co-op.
Before any funding options could be agreed by farmers, board directors of Kerry Co-op have said a clear vision and business plan needs to be outlined on how the joint venture will benefit farmers, particularly around how it will return money invested by farmers over the long-term.
The due diligence process to examine Kerry Group’s dairy business is ongoing and should be concluded in the coming weeks with a final valuation for the business set in stone. Understandably, Kerry Co-op has been unable to comment publicly with details of the potential joint venture up to now.
However, once the due diligence process is complete, the leadership of Kerry Co-op need to come out fast and explain to farmers their vision for this joint venture, how it will benefit farmers and what it will mean for milk prices.
It’s already clear that this joint venture deal, if it goes ahead, is going to be an extremely complex transaction akin to putting a jigsaw together piece by piece
Only when the co-op and Kerry Group has put forward a convincing argument as to why farmers should invest their money in this joint venture can they begin to have mature discussions with its farmer shareholders about the best way for them to contribute to funding it.
It’s already clear that this joint venture deal, if it goes ahead, is going to be an extremely complex transaction akin to putting a jigsaw together piece by piece.
However, the sooner Kerry Co-op starts providing its farmer shareholders with detailed information on this jigsaw puzzle, the better chance it has of getting the green light to proceed with it.