Kerry Group plc has agreed to sell Kerry Dairy Ireland to Kerry Co-Operative Creameries Limited in a phased divestment expected to be worth €500m.
Under the terms, the dairy division – which comprises Kerry’s consumer dairy and ingredient arms – will become farmer-owned, with the co-op acquiring a 70% stake for €350m by January 2025 and purchasing the remaining 30% for €150m by the end of 2035.
At first, Kerry will remain a shareholder with a 30% stake in the dairy business to support continuity. The arrangements include setting up a €50m fund to settle the ongoing milk price dispute between the Group and the co-op, with Kerry set to have no liability for any existing or future claims once that fund is established.
The co-op members will become direct owners of Kerry shares equivalent to 85% of the co-op’s current shareholding (worth around €251m and equal to 2.9 million Kerry shares), with the remaining 15% to be used by the co-op to fund the first phase of the acquisition.
The proposed transaction will be put to a shareholder vote on December 19, 2024. Goldman Sachs International, J&E Davy and Arthur Cox LLP are advising Kerry and EY and McCann FitzGerald LLP is advising the co-op.
A new structure
If given the go-ahead, the transaction will result in Kerry splitting into two distinct businesses – Kerry Group: a taste and nutrition solutions provider for the food, beverage and pharmaceuticals industries; and Kerry Dairy Ireland, a dairy consumer and ingredients provider.
This would allow Kerry to consolidate its resources around taste and nutrition – its more profitable businesses, which the group has bolstered through enzymes and biotechnology acquisitions in recent years. At the same time, Kerry sold its Consumer Foods Meats & Meals business to US poultry producer Pilgrim’s Pride for €819m, and the Sweet Ingredients portfolio to IRCA for €500m.
Kerry Dairy Ireland employs more than 1,500 staff and owns 7 manufacturing facilities. The dairy consumer brands include brands such as Cheestrings, Dairygold, Golden Cow, Kerrymaid, and Low Low. The Dairy Ingredients products portfolio includes functional dairy proteins, nutritional dairy bases and cheese systems, along with the provision of agribusiness products and services in the southwest of Ireland.
The restructure will improve Kerry’s financial and sustainability metrics as the Group will no longer consolidate the dairy business under its financial statements and will record its 30% stake as an investment.
Dairy is the single largest contributor to Kerry’s scope 3 emissions (indirect, e.g. from purchased raw milk), which the company has only decreased by 9% in 2023 on its 2017 baseline year (2022: 8%).
The board of Kerry Dairy Ireland will consist of up to 13 directors comprised of seven Co-Op directors, three individuals nominated by Kerry, two independent directors, who the Co-Op and Kerry may agree to appoint to the board from time to time, and the Kerry Dairy Ireland CEO Pat Murphy with support from Kerry Dairy Ireland’s existing team of executives and employees.
‘Muted’ consumer demand
In its Q3 2024 accounts, Kerry Group noted consumer demand across food and beverage had ‘remained relatively muted’ with inflation still hitting shoppers in the pocket.
Dairy Ireland recorded volume growth of 0.4% in the year to date, with 5.7% increase in Q3. Pricing was down 3.1% YTD but up 5.1% in Q3.
The announcement mirrors Kerry’s half-year remarks about ‘relatively subdued’ consumer market demand when the Group revealed its dairy division reported double-digit decrease in revenue in the year to June 30 with decelerated pricing and improved volumes.
Meanwhile, Taste and Nutrition delivered a volume growth of 3.2% in the YTD and 3.4% in the quarter, with strong performance in foodservice (+6.8% in volume terms) and growth across retail, taste and biotechnology.
Kerry reiterated its full-year constant currency adjusted earnings per share growth guidance of 7% to 10%.
'A significant step'
Edmond Scanlon, Kerry Group CEO, commented: “The proposed transaction represents a significant step in Kerry’s 50 year journey. Our strategy of continuous business development and portfolio evolution aligned to our customers has been a key underpin of Kerry’s success over the years.
"The proposed transaction will result in a global leader in taste & nutrition solutions and an end-to-end industry leader in dairy. Both businesses are perfectly positioned for success, thanks to the dedication and extraordinary contribution of our people over the years."
"On completion, Kerry will become a pure play global business to business taste & nutrition company, with sustainable nutrition at its core, while also supporting our financial objectives of continued market outperformance, strong margin progression, and delivering greater returns for our shareholders.”
James Tangney, Chairman of Kerry Co-Op, added: "We are very pleased to have reached an agreement that will ultimately deliver full ownership of one of the leading dairy businesses in the country, while also, in effect, releasing c.85% of Kerry Co-Op’s Kerry Group shares into the hands of our members to be retained or sold by each of them at a time of their choosing.
"Kerry Co-Op and Kerry Group have a shared heritage that has helped create value, pioneer change and shape the dairy industry. As direct shareholders in the PLC, members will continue to gain from the Group’s progress and, in tandem, the Co-Op will focus on ensuring Kerry Dairy Ireland becomes a platform for future growth”.