Glanbia to restructure its milk operations

GLANBIA PLC is to spin off the bulk of its milk-processing business as part of a proposed joint venture with its 54 per cent shareholder, Glanbia Co-op, as both parties prepare for the abolition of milk quotas in 2015.

Under the proposed arrangement, it is envisaged that Glanbia Co-op will take a 60 per cent shareholding in the new structure, with Glanbia plc holding 40 per cent.

Glanbia is finalising an option to purchase a greenfield site at Belview in Kilkenny from IDA Ireland for a new processing site, to deal with the expected increase in milk production that will result from the abolition of the quota system.

While the details will not be outlined until the end of August at the earliest, the sale of 60 per cent of its Dairy Ingredients Ireland division to the co-op could net Glanbia plc €90-€120 million, according to Davy stockbrokers. The new venture would also allow the listed company to concentrate on its global nutritionals divisions, the main focus over the last few years.

From the co-operative’s perspective, the transaction will see its farmer shareholders take 60 per cent direct control of Glanbia’s milk-processing plants at Ballyragget in Co Kilkenny and Virginia in Co Cavan. The Ballyragget plant is the biggest integrated dairy-processing site in Europe.

It is not yet clear how the co-op will fund the acquisition but one possibility is that it may sell off some of their shares in the plc.

Glanbia had previously held discussions with Dairygold about consolidation. The processing plant could still be involved in collaboration with other co-ops as Ireland prepares for a rise in the volume of milk it is permitted to produce.

The Dairy Ingredients Ireland division, which comprises the vast bulk of Glanbia’s Irish milk-processing activities, and excludes its consumer foods and agribusiness operations, has revenues of about €700 million.

Glanbia already operates international joint-venture-type structures, such as its SouthWest business in the US which produces cheddar cheese and whey, and a milk powder venture in Nigeria.

The proposed transaction differs from a plan mooted in 2010, which would have seen the co-op demerge from the plc and Glanbia completely exit the Irish dairy-processing business.

NCB described the deal as positive for Glanbia. “It reduces Glanbia’s exposure to the dairy commodity cycle, reduces the required investment in the low-margin dairy business and allows the company to focus on investment in expanding its nutritionals business globally.” Noting the announcement, the Irish Farmers’ Association urged the Glanbia Co-op “to be ambitious in their final discussions and ensure that dairy farmers are put firmly back in control of their industry”.