12 November 2024
LEI: 635400TLVVBNXLFHWC59
This announcement contains inside
information
KERRY GROUP PLC
PROPOSED SALE OF KERRY DAIRY IRELAND TO KERRY
CO-OPERATIVE CREAMERIES LIMITED
Kerry Group to Become a Pure Play
Taste and Nutrition Company
Kerry Group plc ("Kerry Group" or "Kerry")
today announces that it has entered into an agreement with Kerry
Co-Operative Creameries Limited (the "Co-Op") to sell Kerry Dairy
Holdings (Ireland) Limited ("Kerry Dairy Ireland") to the Co-Op
(the "Disposal") for a total expected consideration of €500
million[1]. Kerry Dairy Ireland is fully
owned by Kerry.
Kerry Dairy Ireland consists of Dairy Consumer
Products, with its leading range of well-loved brands across
cheese, cheese snacks, dairy snacks and dairy spreads which can be
found in chilled cabinets across retailers in the UK and Ireland.
It also comprises the Dairy Ingredients business, which is a
leading provider of Irish dairy ingredients including functional
dairy proteins, nutritional dairy bases and cheese systems, along
with the provision of related agribusiness products and
services.
Pursuant to the Share Exchange Steps (as
described below), the Co-Op members will become direct owners of
Kerry shares equivalent to 85% of the Co-Op's current shareholding.
The remaining 15% of the Co-Op's shareholding in Kerry will be
redeemed as part of the consideration for the Disposal, following
which the Co-Op will cease to be a shareholder in Kerry and Kerry's
issued share capital will reduce by approximately 2.9 million
shares. The transaction will involve no public placement of Kerry
Group plc shares.
The Disposal and the Share Exchange Steps are
referred to in this announcement as the "Proposed
Transaction".
Under the Proposed Transaction, the Co-Op will
initially acquire a 70%[2] interest in
Kerry Dairy Ireland (the "Phase 1 Transaction"), while Kerry will
retain a 30% interest. The parties have further agreed to certain
call-put option arrangements which will transfer the remaining 30%
in Kerry Dairy Ireland to the Co-Op in the forthcoming years (the
"Phase 2 Transaction").
Highlights of the Proposed
Transaction
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Will result in two leading businesses, Kerry Group and Kerry
Dairy Ireland, each better positioned to focus on their respective
strategies and capital allocation priorities:
- Kerry Group: A
leading global provider of taste and nutrition solutions for the
food, beverage and pharmaceutical markets.
- Kerry Dairy
Ireland: A leading Irish provider of dairy consumer products and
dairy ingredients.
>
For the fiscal year 2023, Kerry Dairy Ireland generated
revenue of €1,283.4 million (FY2022: €1,538.9 million) and an
EBITDA of €53.4 million (FY2022: €70.7 million). The profit before
tax attributable to the assets of Kerry Dairy Ireland at the end of
December 2023 was €32 million. The attributable net assets of Kerry
Dairy Ireland at the end of December 2023 were €446 million, with
gross assets of €562 million inclusive of attributable goodwill and
intangibles of €152 million.
>
The Proposed Transaction values Kerry Dairy Ireland at an
enterprise value of €500 million1, equivalent to a
multiple of 9.4x EBITDA for the fiscal year ended 31 December 2023
(FY2022: 7.1x EBITDA).
>
The consideration for the Phase 1 Transaction will be an
estimated €350 million1 and will be satisfied by the
following means:
- Consideration
in the form of Kerry shares by way of a redemption by Kerry of a
portion of the Co-Op's shareholding in Kerry, to occur in
connection with the Share Exchange Steps, in an estimated amount of
€251 million and equivalent to approximately 2.9 million Kerry
shares[3];
- A cash payment
in an estimated amount of €56 million funded by way of third party
acquisition debt; and
- A loan
agreement to be entered into between Kerry and the Co-Op in an
estimated amount of €43 million[4].
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Kerry will be entitled to a fixed dividend of €7.5 million
per annum during the period of the joint ownership.
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The cash proceeds of the Proposed Transaction will be used by
Kerry for general corporate purposes.
>
The Phase 1 Transaction is expected to complete by the end of
January 2025. From the date of completion of the Phase 1
Transaction, Kerry will no longer consolidate Kerry Dairy Ireland
in its Group financial statements and will record its 30% interest
as an investment.
>
The Proposed Transaction will have a positive impact on
Kerry's overall financial metrics with an enhanced revenue volume
growth profile of c.+30 bps p.a., a step change in its EBITDA
margin profile of c. +140 bps, while also improving its overall
sustainability profile.
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Given the transaction structure, the Proposed Transaction
will result in a minimal dilution to Kerry's adjusted earnings per
share of c. 2% in the first year post transaction.
>
The Proposed Transaction includes seven manufacturing
facilities and over 1,500 employees.
As the Co-Op holds approximately 11% of the
issued share capital of Kerry, the Co-Op is considered to be a
substantial shareholder of Kerry for the purpose of the Irish
Listing Rules. The Proposed Transaction therefore constitutes a
related party transaction for Kerry and is subject to the approval
by Kerry's independent shareholders[5]. The
Proposed Transaction is also subject to approval by the Co-Op's
members and other customary conditions including certain regulatory
approvals.
Kerry to Become a Pure Play Taste and Nutrition
Company
The Proposed Transaction represents an
important step in Kerry's evolution to becoming a fully dedicated
global taste and nutrition solutions company. This follows the
significant portfolio development over recent years including the
build out of its proactive health, food protection and
preservation, and enzymes platforms, while also divesting of the
Consumer Foods Meats & Meals business and the Sweet Ingredients
portfolio. The Proposed Transaction will result in greater
portfolio clarity, a more simplified business structure, and
increased capital deployment focus across Kerry's core taste and
nutrition business, while further strengthening Kerry's ability to
execute against its strategic priorities.
The Proposed Transaction will have a positive
impact on Kerry's overall financial metrics, with an enhanced
revenue volume growth profile, combined with a step change in
Kerry's EBITDA margin profile and an improved overall
sustainability profile.
Paving the Way for Kerry Dairy Ireland's
Long-term Success
The Proposed Transaction builds on the
successful partnership between Kerry and the Co-Op, which first
began in 1974 and will evolve to a new ownership model for Kerry
Dairy Ireland. The structure of the Proposed Transaction with Kerry
continuing to have 30% ownership into the future will support
continuity and alignment with Kerry Dairy Ireland, the Co-Op's
members and other stakeholders.
The Proposed Transaction also brings consumer
products and value-add dairy ingredient activities closer to the
dairy farmers and broader dairy ecosystem, thereby creating a
vertically integrated Irish Dairy player of scale, which will be
one of the largest dairy processors in the country. In order to
ensure continuity in Kerry Dairy Ireland's operations and
facilitate an orderly ownership transition, Kerry, the Co-Op and
Kerry Dairy Ireland have agreed that certain transitional services
will be provided by Kerry to Kerry Dairy Ireland comprising IT
services, group shared services, purchasing services and corporate
services. Certain IP licencing arrangements will also be entered
into such that the Kerry Dairy Ireland Business can continue to
avail of certain IP it requires which is owned by Kerry.
As part of the Proposed Transaction, Kerry and
the Co-Op will enter into a Shareholders' Agreement for the period
during which Kerry remains a shareholder in Kerry Dairy Ireland
with terms and conditions that are customary to transactions of
this nature. 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
Chief Executive Officer ("CEO") of Kerry Dairy Ireland. Kerry Dairy
Ireland will continue to be led by Pat Murphy as CEO (who Kerry
Dairy Ireland has identified as a key individual important to the
business) with support from Kerry Dairy Ireland's existing, strong
team of executives and employees.
Edmond Scanlon, Chief Executive Officer of Kerry
Group, 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
commented:
"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".
Additional Detail on the Terms of the Proposed
Transaction
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Phase 1
Transaction: The consideration for the Phase 1
Transaction will be an estimated €350 million, subject to the
following adjustments:
- Customary
completion accounts adjustments in respect of cash, debt and
working capital;
- A potential
valuation adjustment should Kerry Dairy Ireland not achieve agreed
adjusted EBITDA targets through to fiscal year end 2025[6]. To the extent any such adjustment should arise,
Kerry does not expect it to be material to the Group;
and
- A
potential adjustment in the unlikely event that there is a material
adverse movement in the value realised by the Co-Op as a result of
the Share Exchange Steps described below.
>
Share Exchange
Steps: The Co-Op currently holds approximately
19 million Kerry shares equivalent to approximately 11% of the
issued share capital of Kerry. The following steps (the "Share
Exchange Steps") will occur on completion of Phase 1 of the
Proposed Transaction:
- Share for Share
exchange: A share for share
exchange whereby Kerry will acquire approximately 85% of the shares
in the Co-Op that are held by its members, in exchange for issuing
an amount of Kerry shares directly to the members of the Co-Op,
equal in value to approximately 85% of the Kerry shares currently
held by the Co-Op;
- Redemptions: (a) The
redemption by Kerry of the Co-Op's entire shareholding in Kerry
(approximately 19 million shares), in exchange for a promissory
note of equivalent value, and (b) the redemption by the Co-Op of
the Co-Op shares held by Kerry (as acquired in the share for share
exchange above) in exchange for a promissory note of equivalent
value;
- Promissory note set off:
The amounts outstanding under each promissory note will be
offset against each other, which will result in a promissory note
balance in favour of the Co-Op equal to approximately 15% of the
market value of the Co-Op's original 11% shareholding in Kerry
Group and which will be used by the Co-Op to fund part of the Phase
1 Transaction Consideration.
As a result of the Share Exchange Steps, (i)
Kerry's issued share capital will reduce by approximately 2.9
million shares, (ii) the Co-Op will no longer hold shares in Kerry,
and (iii) the Co-Op members will directly hold Kerry
shares.
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Phase 2
Transaction: At any time on or prior to 31 July
2035, the Co-Op will have the right to purchase the remaining 30%
interest in Kerry Dairy Ireland in exchange for cash in an amount
of €150 million1, with closing
to occur no later than 31 December 2035 (the "Call Option"). In the
event that the Co-Op does not exercise the Call Option before 31
July 2030, Kerry will have the right at any time after 31 July 2030
and on or prior to 31 July 2035, to require the Co-Op to purchase
the entire 30% interest in Kerry Dairy Ireland for a consideration
of €150 million1 (to be satisfied by way of cash and/or
seller loan agreement) with closing to occur by no later than 31
December 2035 (the "Put Option"). On exercise of the Put Option or
the Call Option, Kerry Dairy Ireland will become wholly owned by
the Co-Op.
Milk Supply Agreement
With effect from completion of the Phase 1
Transaction, Kerry, Kerry Creameries Limited (a subsidiary of Kerry
Dairy Holdings (Ireland) Limited) and the Co-Op have agreed that a
fund of €50 million be established and funded by Kerry within Kerry
Creameries Limited for the resolution of the ongoing dispute and
related claims and arbitrations between Kerry Creameries Limited
and certain milk suppliers in relation to the milk price paid and
payable by Kerry Creameries Limited to certain milk suppliers
pursuant to the Milk Supply Agreement which remains in place until
2026. Once the fund has been established the parties have agreed
that Kerry will have no liability for any existing or future claims
from Milk Suppliers under the Milk Supply Agreement. Separate
communications with further detail in this regard will be issued by
both the Co-Op and Kerry Creameries Limited to such milk
suppliers.
Next Steps and Timing
An extraordinary general meeting of Kerry is
expected to take place on Thursday 19 December 2024 for Kerry
shareholders to vote on the Proposed Transaction. A notice of the
extraordinary general meeting and shareholder circular with further
details on the Proposed Transaction and proposed shareholder
resolutions is expected to be published on or around Monday 25
November 2024.
About Kerry Group
Kerry Group is a world leading provider of
taste and nutrition solutions for the food, beverage and
pharmaceutical markets. It innovates with its customers to create
great tasting products, with improved nutrition and functionality,
while ensuring a better impact for the planet. Kerry's leading
consumer insights, global RD&A team of 1,200+ food scientists
and local manufacturing footprint in 34 countries enables it to
co-create with its customers across over 150 countries. Kerry is
driven to be its customers most valued partner, creating a world of
sustainable nutrition. For more information, visit www.kerry.com.
About Kerry Dairy Ireland
Kerry Dairy Ireland is a leading provider of
dairy consumer products and dairy ingredients. The Dairy Consumer
Product portfolio comprises cheese, cheese snacks, dairy snacks,
dairy spreads and low-fat spreads as well as dairy alternative and
hybrid ranges. The dairy consumer brands include brands such as
Cheestrings, Dairygold, Golden Cow, Kerrymaid, Low Low amongst
others, which can be found in chilled cabinets, principally in
retailers across Ireland and the UK. 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.
Inside Information
This announcement contains inside information.
The person responsible for arranging for the release of this
announcement on behalf of Kerry Group plc is Ronan Deasy, Company
Secretary. The time and date of this announcement is, at 6.30am
Irish time, 12 November 2024.
Analyst and Investor Call
A presentation to analysts and investors will
be broadcast live from 7.30am Irish time on the Investors section
of Kerry Group plc's website (www.kerry.com/investors).
Related slides will also be available on the
website in the Investors section.
Advisers
Advisers to Kerry: Financial adviser:
Goldman Sachs International, Sponsor: J & E Davy and Legal
adviser: Arthur Cox LLP.
Advisers to the Co-Op: Financial adviser: EY
and Legal adviser: McCann FitzGerald LLP.
