Kerry Group plc has reached an agreement for the sale of its consumer foods, meats and meals business.
Is it a surprise? No, not really.
Kerry has strongly indicated it is going after the higher margin of the taste and nutrition business.
In 2020, we learned Kerry had hired Bank of America's Merrill Lynch to advise on the future of its consumer foods business – the meats and the milk.
Kerry Group plc indicated that the strategic review of the dairy business has been completed
At the time, the thinking was the milk might go first to the Kerry farmers and the meats elsewhere.
However, it has happened in reverse; the meats are gone and the milk is still in Kerry Group.
While announcing the meats sale, Kerry Group plc indicated that the strategic review of the dairy business has been completed and there will be no disposal of the dairy business at this time.
So what does this mean for the sale of the milk business to the farmers or anyone else?
In my opinion, I think it just buys time for Kerry Group CEO Edmund Scanlon to sort out the issues that have been dragging on the dairy sale.
Scanlon has been forthright in his views on the value of the milk business and that it will be sold, to the farmers or elsewhere.
Not being able to do a deal with the Kerry farmers will have been a negative for Scanlon’s copybook.
Selling the meats business buys time for the CEO to get the dairy issues sorted out, while staying true to his word on prioritising resources.
All the language in the annual reports and briefings has been that Kerry will continue to pursue organic and acquisitive growth opportunities
While Kerry Group plc says there will be no disposal of the dairy business right now, I think it’s fairly clear that it is just timing and that, long term, the objective of Kerry Group plc is to sell the dairy business.
This would result in the same objective as selling the meats business - free up money for acquisitions in the fast-growing taste and nutrition sector and keep share price rising.
All the language in the annual reports and briefings has been that Kerry will continue to pursue organic and acquisitive growth opportunities to support its objectives in areas of health and wellness, plant protein and natural preservation.
When you look at the Kerry business, the taste and nutrition division is the big part of the Kerry revenue machine – €5.8bn of the €7bn revenue (82% in 2020).
The consumer foods division is €1.28bn of the €7bn revenue pot.
The business it has agreed to sell - meats and meals - is a part of this consumer foods business.
While a very significant business to sell, we must remember in the context of the overall Kerry Group business, it’s part of a much bigger business that has 26,000 employees and operations in 31 countries.
The meats business is a leading manufacturer of branded and private-label meats, meat snacks and food-to-go in the UK and Ireland.
There are some brands that many farmers can relate to, such as Denny and Galtee. Denny started in Waterford, while the Galtee brand moved from Dairgyold in 2008.
The Kerry boss will be hoping for a share price bounce from this announcement. Trading closed at €106 yesterday and, in very early trading on Friday, went over €110 per share.
The most recent share price peak was at €123 per share last December and the previous high had been €126 in February 2020.
It was April 2019 when share price exceeded €100/share for the first time.