It has emerged last week that the board of Kerry Co-op is busy signing off on an increased number of shareholders exiting or reducing their shareholding in Kerry Co-op.
Last week at a scheduled co-op board meeting it is understood that over 24 pages of commercial transactions related to shares operated by Kerry Co-op had to be signed off by the board.
Rumours that are circulating in Kerry suggest some farmers have sold upwards of 6,000 shares in individual deals on the grey market with a view to de-risking their investment.
One unconfirmed report suggests a farmer sold some 23,000 shares in a deal.
Some farmers sell Kerry Co-op shares on the grey market
These transactions relate to the sale and transfer of shares planned for later this year. Self-directed pension funds occasionally invest in these shares, sometimes in low volumes. If a large shareholder decided to sell shares then it could take a large number of smaller individual transactions to complete the full transfer of shares.
Some farmers sell Kerry Co-op shares on the grey market as they can write off the purchase price of the shares, reducing the effective tax rate to maybe less than 30%. Pension funds also invest as they pay no tax on gains.
Davy stockbrokers handle a large volume of these trades on the grey market. There is no visibility on price to the seller when he/she decides to sell on the grey market.
The grey market in Kerry Co-op has been in existence for years
The potential seller alerts the broker to the sale of a number of shares and the price expected and Davy then searches for a buyer.
The grey market in Kerry Co-op has been in existence for years. However, since the redemption scheme opened in 2019 there has been a lot more activity in the market.
As Kerry Co-op has reduced its shareholding in Kerry Group plc through spin-outs and subsequently started the redemption schemes, the grey market has thrived. Board members need to sign off on the share transactions.
A large number of transactions in the redemption scheme are not unusual – there were 2,990 applications in 2019 and 2,316 redemptions in 2020.
Why increased activity in selling now? Farmer and industry sources suggest that since the failure of the co-op to complete the proposed joint venture for the dairy processing business with Kerry Group, there has been an increasing frustration with the co-op board on the future direction and investment strategy of Kerry Co-op.
Kerry Group pays the milk price to suppliers and Kerry Co-op is effectively a very large shareholder (about 11.7%) in Kerry Group plc, with a stake valued at over €2.5bn
Also, farmers could be taking the decision to de-risk their investment now by selling some or all of the shareholding when Kerry Group seems to be going well.
Remember, Kerry Group pays the milk price to suppliers and Kerry Co-op is effectively a very large shareholder (about 11.7%) in Kerry Group plc, with a stake valued at over €2.5bn.
These schemes allow shareholders cash in their co-op shares
Kerry Co-op investments listed in the co-op annual report include: Kerry Airport, Listowel Races Development Company Ltd, Kenmare Livestock Mart Co-Operative Society Ltd, Cilcoone Ltd (Cork Racecourse), FBD Holdings, Kingdom Co-Op Mart, Golden Vale Marts, and Western Forestry Co-Op Ltd.
The co-op has now completed five share redemption schemes. These schemes allow shareholders cash in their co-op shares.
In June it was reported that Kerry Co-op, placed €77m worth of shares (665,000 shares) in Kerry Group through Goodbody Stockbrokers. The placing was to fund the latest redemption scheme in Kerry Co-op, allowing co-op members to cash in shares. This is funded by the co-op selling shares in the public-limited company. Previous placings for Kerry Co-op under the share redemption scheme, including one in late 2019 that raised €90m and another last June that brought in almost €78m.
The price on the grey market today is unknown, but, recent reports suggest it is between €570 and €600 per share as the plc share price has increased.
In the last week it has also emerged that the Kerry co-op board has exercised its discretion and deferred the completion for a requested share transaction for one high profile individual shareholder.
The same individual was also asked in the letter for a written apology for public comments he has made about the co-op.
In the letter seen by the Irish Farmers Journal from a solicitor representing Kerry co-op creameries (KCC) to the named individual it states, “We are instructed that the decision by the Board of KCC the consideration of the transfer of your clients shares in KCC has been deferred for the time being and matters are under review by the board.”
The farmer who might have sold his shares on the grey market for upwards of €600,000 could be expelled from the co-op
In a separate statement the farmer client was instructed to send in a written apology with respect to his behavior and public pronouncements regarding Kerry co-op. He was also asked to undertake not to attempt to seek re-entry as a member of KCC once the sale of the shareholding has taken place, if it takes place.
Were the board to refuse to sanction the transaction and if they took steps to expel the farmer it could have very serious implications for the farmer in question. The farmer who might have sold his shares on the grey market for upwards of €600,000 could be expelled from the co-op, and his shares only valued at par, €1.25 per share, bringing his shareholding value down to €1,000 in total.
We understand the move by the Kerry Co-op board has made some farmers very angry and there were rumours that some board members were considering resigning from the board over the matter and hadn’t agreed to this course of action.
When contacted the farmer did not want to comment on the matter.
Special general meeting
It was expected that either a virtual or in person special general meeting (SGM) would be called in August 2021 to consider a number of changes to the co-op rule book. However, after consulting with advisory meetings the August meeting did not go ahead. We understand that this SGM will not now go ahead until a meeting can be held in person when COVID-19 restrictions allow.
When you redeem the ordinary shares, these will be cancelled from your account. Where a shareholder still holds ordinary shares in the society, the co-op will issue a balance share certificate after the transaction has been completed.
Shareholders apply. All valid applications shall be binding on the shareholder and may not be withdrawn. A cheque will be issued to each successful application in the name of the lead shareholder.
How much will a shareholder get for a Kerry Co-op share?
The value of one Kerry Co-op share will be based on a multiplier of 5.9 times the sale price achieved for Kerry Group plc shares. Is there a limit to what a shareholder can sell? No, but the co-op put a maximum threshold of 1 million Kerry Group plc shares that will be offered for sale in any tranche of the scheme.
What tax applies to this scheme?
The share redemption scheme is deemed a distribution by revenue and is subject to income tax rather than capital gains tax, PRSI and USC are also payable.