Irish dairy giant Glanbia has signed a Memorandum of Understanding with Glanbia Co-operative Society Limited to enter into a joint venture in respect of its Dairy Ingredients Ireland (DII) business.
Under the proposed transaction, Glanbia Ingredients Ireland (GII) – as DII will be known - will be 40% owned by Glanbia and 60% owned by Glanbia Co-operative Society - Glanbia’s largest shareholder
Subject to the necessary approvals and the completion of legal contracts, the transaction is expected to be completed before the end of 2012.
Glanbia intends to use proceeds from the proposed 60% share sale to repay existing debts.
The existing DII business, which generated revenue of €738m in 2011, is the largest dairy ingredients processor in Ireland. It currently manufactures around 180,000 tonnes of dairy ingredients per year and exports to more than 50 countries around the world.
According to Glanbia, there is “compelling strategic logic” in the creation of the joint venture. It will facilitate the expansion of dairy processing in Ireland in advance of the European Union (EU) milk quota abolition in 2015.
Opportunity to expand
“There is a compelling strategic logic for the creation of the joint venture for both parties as it facilitates the expansion of dairy processing in Ireland in advance of EU milk quota abolition in 2015, while also ensuring that Glanbia’s financial resources are directed towards business segments that deliver the highest return on capital for all shareholders,” said Glanbia.
EU milk production is expected to increase by between 55% and 60% in the five years following the milk quota abolition.
Earlier this week, Glanbia was granted permission to build a new processing plant in Belview, County Kilkenny. Glanbia submitted the planning application in anticipation of its potential joint venture with Glanbia Co-operative Society.
Through the agreement, it is envisaged that GII will increase its existing dairy processing capabilities by up to 60% following a total investment of €180m.
“The opportunity to expand milk production is underpinned by a positive long-term outlook for global dairy markets and the comparative advantage that Ireland enjoys as a grass-based system,” Glanbia added.
Glanbia Co-operative Society, which currently holds a 54.4% interest in Glanbia, plans to part fund its investment in the joint venture through a 3% sale of the issued share capital of Glanbia.
Separately, Glanbia Co-operative Society will seek approval from its shareholders to dispose of an additional 3% of the issued share capital of Glanbia. The Society will also distribute an additional 7% of Glanbia share capital to its members.
If approved, the share disposals will see Glanbia Co-operative Society’s interest in Glanbia fall from 51.4% to 41.4%.
Meanwhile, Glanbia has upgraded its 2012 full year outlook following a “solid” half year performance for the six months ended 30 June 2012.
The Kilkenny-based firm reported sales revenue of €1.364bn for the first six months of the year. Earnings before interest, taxes, depreciation and amortization (EBITDA) hit €107.2m for the six month period – a 6.5% increase on the €100.7m reported in H1 2011.
Glanbia cited a strong first half performance from its Global Nutritional division, a “reasonable” performance from its US Cheese segment and “satisfactory performances” from its Dairy Ireland division and international joint ventures.