As speculation grows that Glanbia plc is going to sell its 40% share of Glanbia Ireland to Glanbia Co-op, a fresh row is emerging over the valuation of the company.

Recent media commentary has put the value of the plc share at €500m but a new report commissioned by a group of milk-supplying shareholders says that the plc share is worth €185m.

Earlier this year the co-op began a process of looking at its structures and appointed KPMG as its adviser.

If the co-op buys out the plc share, it will have full control over milk processing and the Glanbia agri-businesses.

The shareholder group, which has over 40 members and calls itself Beyond the Parlour, commissioned financial analyst Tom Barry to carry out a report on the financial performance of Glanbia Ireland.

That report, which has been circulated to the chair and board of Glanbia Co-op, says Glanbia Ireland could afford to pay an extra 2c/l for the milk it collects from farmers, if it were not for the 3.2% profit after tax (PAT) target.

Because of the 3.2% profit after tax, Glanbia Ireland’s milk price is never as high as it could be because milk price is a cost before profit. This is giving an unfair advantage to the plc

Spokesman for the group, Kilkenny dairy farmer Seán Cummins, told the Irish Farmers Journalthat the PAT of 3.2% is out of line compared with other processors and, as a result, is inflating the value of the company.

“Standard practice when valuing a company is to use a multiple of earnings [EBITDA]. Because of the 3.2% profit after tax, Glanbia Ireland’s milk price is never as high as it could be because milk price is a cost before profit. This is giving an unfair advantage to the plc, which gets 40% of Glanbia Ireland’s profits.

“The unfair PAT is inflating the earnings and the inflated earnings is driving an unfair valuation for the company.

While we support the co-op in buying out the plc, we need to be sure that it doesn’t pay too much for it and give away hard earned co-op value

“Our report suggests that the earnings should be revised downwards to account for the fact that it should be paying more for milk. The report says the plc share is worth approximately €185m.

“While we support the co-op in buying out the plc, we need to be sure that it doesn’t pay too much for it and give away hard earned co-op value.

“Every €100m that it pays is equivalent to €170/cow for the average Glanbia supplier,” Cummins said.

Healthy

The report says that Glanbia Ireland is in a very healthy financial position, with long-term bank debt of approximately €100m and earnings of €125m per year. Last year, Glanbia Ireland reduced its debt by €55m and has shareholder equity of €430m.

It is expected that the co-op will sell some of its plc shares to part-fund the purchase of the plc share in Glanbia Ireland

Glanbia Ireland is a joint venture between the co-op and the plc, which was formed in 2017 after a special general meeting of co-op shareholders was held at Punchestown in Co Kildare.

The co-op is the largest shareholder in the plc, holding over 32% of the shares which are currently worth north of €1.3bn and which brings in an annual dividend to the co-op of approximately €25m per year.

It is expected that the co-op will sell some of its plc shares to part-fund the purchase of the plc share in Glanbia Ireland, with some of the plc shares likely to be spun out to the over 11,000 shareholders in the co-op.

The Beyond the Parlour shareholder group, many of whom are involved in the Glanbia representative structure, says its next move is to hold an information meeting for concerned shareholders to discuss the report and to commission another report on the corporate governance structures within Glanbia.

Glanbia Co-op chair John Murphy told the Irish Farmers Journal this week that the work of the advisers appointed by the co-op is continuing.