TIDMGLB
RNS Number : 3293D
Glanbia PLC
26 April 2017
Glanbia plc announces it has signed binding legal agreements to
sell 60% of Dairy Ireland
26 April 2017, Glanbia plc ("Glanbia" or the "PLC") and Glanbia
Co-operative Society Limited ("Glanbia Co-op" or the "Society")
have today announced they have signed binding legal agreements,
subject to certain approvals and conditions, for the sale of a 60%
interest in Glanbia's Dairy Ireland segment to Glanbia Co-op (the
"Proposed Transaction"). Dairy Ireland is currently 100% owned by
Glanbia plc and is comprised of two business units, Glanbia
Consumer Foods Ireland and Glanbia Agribusiness.
Commenting today, Siobhan Talbot, Group Managing Director of
Glanbia said:
"I'm pleased to announce that Glanbia has signed binding legal
agreements, subject to certain approvals and conditions, to sell a
60% interest in Dairy Ireland to Glanbia Co-op. This strategic
initiative remains on track to be completed by mid-year. Once
completed it is planned to integrate Dairy Ireland with our
Associate, Glanbia Ingredients Ireland DAC to form "Glanbia
Ireland", which will be a leading Irish food business. This will
bring together Glanbia Group's Irish dairy and agri-businesses
under single ownership and will enable Glanbia to continue to focus
on its two growth platforms of Glanbia Performance Nutrition and
Glanbia Nutritionals."
Introduction
In 2012, Glanbia and its largest shareholder, the Society
established Glanbia Ingredients Ireland DAC ("GIID") as a dairy
processing joint venture which is owned 40% by Glanbia and 60% by
the Society. On 22 February 2017, Glanbia announced that it had
agreed a non-binding memorandum of understanding with the Society,
subject to contract and certain approvals, to dispose of 60% of
Glanbia Foods Ireland Limited ("GFIL") and related assets (together
"Dairy Ireland") to the Society. Dairy Ireland is currently 100%
owned by Glanbia and is comprised of two business units, Glanbia
Consumer Foods Ireland and Glanbia Agribusiness. Prior to
completion of the Proposed Transaction ("Completion"), a corporate
restructuring will take place to ensure that all of the assets
related to the two business units are transferred to GFIL. The
Society will acquire the 60% interest in Dairy Ireland indirectly
by investing further in GIID which will acquire 100% of GFIL from
Glanbia ("the Proposed Transaction").
After Completion of the Proposed Transaction GIID will be owned
40% by Glanbia and 60% by the Society and will be known as Glanbia
Ireland. While this is the same percentage shareholdings that each
company currently holds in GIID, it represents an expansion of this
existing joint venture since it will encompass the existing
businesses of GIID and Dairy Ireland, including Glanbia Consumer
Foods Ireland and Glanbia Agribusiness.
As the Society is deemed to be a substantial shareholder in
Glanbia for the purpose of the listing rules of the Irish Stock
Exchange and UK Listing Authority (the "Listing Rules"), the
Proposed Transaction is classified as a related party transaction
under the Listing Rules and is subject to, and conditional upon,
the approval of the shareholders of Glanbia, other than the Society
or persons connected with the Society ("Independent Shareholders").
The approval of Independent Shareholders for the Proposed
Transaction will be sought at an extraordinary general meeting of
Glanbia (the "EGM"), details of which will be included in a
circular (the "Circular").
The Proposed Transaction is also subject to certain other
conditions, which are summarised in this announcement. Further
details on the terms and conditions of the Proposed Transaction
will be included in the Circular to be published shortly.
Background to and reasons for the Proposed Transaction
The Board believes the Proposed Transaction to be in the best
interests of Shareholders as a whole as it:
-- will allow Glanbia to continue to focus on its global
nutrition strategy through the platforms of Glanbia Performance
Nutrition (GPN), Glanbia Nutritionals (GN) and Strategic Joint
Ventures for the benefit of all shareholders;
-- creates an integrated Irish-based business of scale which is
the largest dairy processor in Ireland;
-- builds on the successful partnership of Glanbia and the
Society when GIID was created in 2012;
-- creates one integrated organisation to maximise opportunities
from anticipated growth in Irish milk supply;
-- envisages the investment of EUR250 million to EUR300 million
in a strategic capital investment programme in GIID in the period
2017 to 2020. This investment programme is intended to increase
capacity to support the stated growth ambitions of the GIID milk
suppliers and optimise value-adding opportunities. The financing of
the investment will substantially be sourced from dedicated bank
facilities in GIID; and
-- will reduce Glanbia's working capital funding requirements.
In making its recommendation, the Board has considered the
following potential risks as being the material risks associated
with the Proposed Transaction and having assessed these risks, it
concluded that they are significantly outweighed by the anticipated
benefits:
-- as a minority shareholder, Glanbia will have less influence
on the activities of Dairy Ireland than is currently the case;
-- while a business plan has been agreed for GIID which provides
a new minimum profit policy for the enlarged business, there can be
no absolute certainty that GIID will achieve the level of
profitability envisaged by this business plan;
-- as the minority shareholder in a joint venture, Glanbia's
shareholding in GIID will be illiquid and its ability to realise
value for this shareholding will be constrained; and
-- as Glanbia's largest shareholder, there is a commonality of
interests between Glanbia and the Society, but this would not be
the case if the Society were to substantially reduce its
shareholding in Glanbia.
Information on Dairy Ireland
Dairy Ireland is currently a wholly owned segment of Glanbia. As
of 31 December 2016, Dairy Ireland had gross assets of EUR307.4
million. In 2016 Dairy Ireland delivered revenue of EUR616.2
million, earnings before interest, tax and amortisation ("EBITA")
of EUR30.7 million and an EBITA margin of 5.0% . Dairy Ireland,
which accounted for 10.1% of Glanbia's wholly owned EBITA in 2016,
has two main businesses, Glanbia Consumer Foods Ireland and Glanbia
Agribusiness including associated investments. Glanbia Consumer
Foods Ireland is a leading supplier of branded consumer dairy
products to the Irish market, as well as an exporter of long-life
consumer dairy products. Glanbia Agribusiness supplies inputs to
the Irish agriculture sector and is the leading purchaser and
processor of grain and is a large-scale manufacturer and seller of
branded animal feed in Ireland. Dairy Ireland also has holdings in
a number of entities involved in primary manufacture and
distribution of farm inputs. All of Dairy Ireland's manufacturing
operations are based in the Republic of Ireland.
The pension obligations associated with the Dairy Ireland
businesses are included in the Proposed Transaction. On an IAS 19
basis these obligations amounted to approximately EUR54 million as
at 31 December 2016. As at the most recent reporting date of 31
December 2016, the relevant pension schemes met or remained on
target to meet the statutory minimum funding standard in accordance
with funding proposals agreed with the relevant trustees and
accepted by the Pensions Regulator in Ireland. After Completion,
Glanbia will continue to be the principal employer of the defined
benefit pension schemes associated with Dairy Ireland. GIID and
GFIL, as participating employers of the defined benefit pension
schemes associated with Dairy Ireland, will also become jointly and
severally responsible for funding the pension obligations
associated with the defined benefit pension schemes of Dairy
Ireland.
Transaction Proceeds
Under the Proposed Transaction, the Society, through its
shareholding interest in GIID, will indirectly acquire a 60%
interest in Dairy Ireland. In return, Glanbia will receive EUR112
million together with an amount equal to 100% of the amount of the
working capital in Dairy Ireland at Completion (these two payments
are referred to as the "Transaction Proceeds"). The average 3 year
working capital in Dairy Ireland over 2014, 2015 and 2016 was
approximately EUR92.5 million. To the extent that the working
capital balance at Completion is higher or lower than the average
three year working capital, the payment in relation to working
capital will be based on the actual balance at that time. While the
basis for determining the amount of working capital of Dairy
Ireland has been agreed by the parties, the exact amount will not
be known until after Completion as the Transaction Proceeds are
subject to adjustment by reference to the completion accounts.
GIID's acquisition of Dairy Ireland will be effected by way of a
subscription for new shares in Dairy Ireland followed by a
redemption of shares currently held in Dairy Ireland by Glanbia
together with a sale of certain properties and investments directly
to GIID. The Transaction Proceeds to be paid to Glanbia by GIID
will be funded by a subscription by the Society of EUR112 million
for new equity in GIID and by GIID financing the payment for
working capital with additional debt facilities to be arranged
prior to Completion. The Proposed Transaction is therefore
conditional on these additional debt facilities becoming available.
The payment of EUR112 million will occur at Completion and the
payment for the working capital of Dairy Ireland will be made in
full within three months of Completion subject to successful
agreement of completion accounts.
As part of the Proposed Transaction, the existing Shareholders'
Agreement will be replaced so that the Society will now also have
an option in the event of a change of control of Glanbia to acquire
the remaining 40% shareholding in GIID. Should the Society exercise
this option, Glanbia would no longer be a shareholder in GIID.
Funding of Transaction Proceeds
The Society will fund its subscription of EUR112 million for new
equity in GIID from its existing resources which will include the
placing of some of the shares it holds in Glanbia up to 2.05% of
the entire issued share capital of Glanbia (the "Placing by the
Society"). GIID will have to arrange additional debt facilities in
an amount not less than EUR100 million in order to fund the
remainder of the Transaction Proceeds.
Use of proceeds and financial effects of the Joint Venture
The proceeds from the Proposed Transaction will be used for
general corporate purposes, including the repayment of indebtedness
related to recent acquisitions which were completed and announced
in the first quarter of 2017.
As Completion is currently expected to take place in July 2017,
the Proposed Transaction would therefore be reflected in the
Group's accounts for the financial year ending 30 December
2017.
Post completion of the Proposed Transaction, Glanbia will
account for its interest in GIID, including Dairy Ireland, using
the Equity Method, recognising its share of the entity's results
through the Group income statement. As the earnings of Dairy
Ireland will no longer be consolidated with the earnings of Glanbia
post Completion, the Proposed Transaction is expected to be 5% to
7% dilutive to the adjusted earnings per share ("Adjusted EPS") of
Glanbia on a full year pro forma basis in 2017.
Possible share sale and spin out by the Society
As mentioned above, the Society is the largest shareholder in
Glanbia with a 36.5% shareholding. The Society has announced that
it is seeking approval from its members to a rule change allowing
the Board of the Society the discretion to further reduce the
Society's shareholding in Glanbia to 28%. If the rule change is
approved the Board of the Society will place an additional number
of shares equal to 0.95% of the issued share capital of Glanbia and
also make a distribution of Glanbia shares to the members of the
Society equivalent to approximately 2% of the issued share capital
of Glanbia.
Under the Society's rules, the reduction in the Society
shareholding in Glanbia below 33% will require a two-thirds
majority vote in favour. Seeking approval for the Board of the
Society to have the discretion to reduce the Society's shareholding
to below 33% is contingent on the Proposed Transaction being
approved. If the Proposed Transaction is not approved the
shareholding reduction proposal will not proceed. However, the
Proposed Transaction can still proceed even if the proposal to
reduce the Society's shareholding below 33% is not approved by the
members of the Society.
If all of the proposals above are approved and fully executed
the Society would own approximately 31.5% of the issued share
capital in Glanbia.
Glanbia Board composition
There are currently two vacancies on the Board of Glanbia. Of
the 16 Directors who are currently on the Board, 8 Directors are
nominees of the Society ("Society Nominees"). The number of Society
Nominees is expected to increase later this year when the Society
nominates two persons to fill the vacancies which are reserved for
it on the Board of Glanbia under the existing Relationship
Agreement. While Siobhan Talbot is not a Society Nominee, she is a
director of the Society.
If the Society's Members approve the Proposed Transaction and
Related Proposals, the existing Relationship Agreement between the
Society and Glanbia will also be amended and restated pursuant to
an Amended and Restated Relationship Agreement, with effect from
such time as the Society's shareholding in Glanbia falls below 33%
(which will occur if the Society's members approve the Proposed
Transaction and Related Proposals), to provide that for 2022 and
subsequent years the number of Directors on the Board of Glanbia
who are also Society Nominees will reduce to 6. If the Society's
shareholding in Glanbia falls below 28%, discussions are to take
place regarding a further reduction in the size of its
representation on the Board of Glanbia.
The following governance arrangements will apply with respect to
the composition of the Board of Glanbia if the Society's
shareholding in Glanbia falls below 33%:
-- For 2017, the number of Directors on the Board of Glanbia,
who are Society nominees will be 10;
-- In 2018, the number of Society Nominees will reduce to 8,
which number of Society Nominees will also apply in 2019;
-- In 2020, the number of Society Nominees will reduce to 7,
which number of Society Nominees will also apply in 2021; and
-- In 2022 the number of Society Nominees will reduce to 6,
which number of Society Nominees will also apply each subsequent
year thereafter.
The Amended and Restated Relationship Agreement will continue to
provide that it is the intention of the parties that the Society
would continue to nominate a Society Nominee as Chairman of the
Board until no later than 30 June 2020.
Up to 8 of the Directors on the Board will be made up of
executives and independent (of the Society) non executive
Directors. The parties will co-operate to ensure (as far as
practicable) that the independent non executive Directors will be
appointed on the recommendation of the Nominations and Governance
Committee of the Board of Glanbia, the majority of whose members
will be independent non-executive Directors. If the number of
non-Society Nominees on the Board of Glanbia changes, the number of
Society Nominees set out above will change pro rata.
Where a reduction is required to take effect in the number of
Society Nominees in respect of a particular year it shall take
effect on the earlier of the conclusion of the first board meeting
of the Society immediately following the annual general meeting of
the Society which takes place in that year or 30 June (or such
earlier date as the Society shall agree with Glanbia) in that
year.
Conditions to Completion
Completion of the Proposed Transaction is conditional upon:
-- the approval of the Proposed Transaction by an ordinary
resolution of the Independent Shareholders at the EGM;
-- the approval by a simple majority of the members of the
Society of its investment in Dairy Ireland (as contemplated by the
Proposed Transaction) by means of an advisory resolution at a
special general meeting of the Society being convened for 18 May
2017;
-- the Placing by the Society having been completed and the
proceeds thereof being available to the Society;
-- there being no material adverse change to the business of
Dairy Ireland between the date of the Share Subscription and
Redemption Agreement and Completion; and
-- GIID having arranged additional debt facilities in an
aggregate amount not less than EUR100 million which are
unconditionally available, including payment for the Dairy Ireland
working capital. The Proposed Transaction cannot be completed
without these additional debt facilities.
Completion of the Proposed Transaction is not conditional upon
any regulatory approvals having been obtained.
Call Option in favour of the Society
Under the Shareholders' Agreement, the Society will continue to
have a call option (the "Call Option") to acquire Glanbia's 40%
interest in GIID. This Call Option will be exercisable for a 1 year
period commencing on completion of a change of control event in
relation to Glanbia. For the avoidance of doubt, a reduction of the
Society's representation on the Glanbia Board or its shareholding
in Glanbia below 30% shall not constitute a change of control for
the purposes of the commencement of the Call Option (unless there
is an associated acquisition by an unaffiliated third party of a
controlling interest in Glanbia). The price payable by the Society
on completion of the Call Option shall be an amount equal to 40% of
the fair value of GIID as between a willing buyer and willing
seller (and no discount in respect of Glanbia being a minority
shareholder in GIID will apply). The fair value of GIID shall be
agreed by Glanbia and the Society or, in the absence of agreement,
the fair value shall be the midpoint between the valuations as
determined for the fair value by two suitably qualified independent
valuers. A cap of EUR950 million has been placed on the total
consideration which may be payable in respect on the exercise of
the Call Option by the Society. Without this cap, the Proposed
Transaction would be categorised as a Class 1 transaction under the
Listing Rules notwithstanding the fact that the Board believes it
is highly unlikely that the fair value of GIID would increase to an
amount that would cause the cap to be exceeded.
If following the exercise of the Call Option by the Society,
GIID and/or GFIL continues to be a participating employer in the
Dairy Ireland related defined benefit pension schemes and Glanbia
continues to be the principal employer, the Society will guarantee
to Glanbia the due performance of the obligations of these
companies under the schemes for so long as each individual company
remains as a participating employer.
For a period of 3 years from Completion, Glanbia shall not,
directly or indirectly, without the Society's prior written
consent, transfer or dispose of any interest in GIID, or enter into
any agreement, arrangement or understanding (whether legally
binding or not) or do or omit to do any act as a result of which
any third party may acquire such interest. This restriction shall
not apply to transfers by Glanbia to subsidiaries of Glanbia
provided that the transferee does not cease to be a subsidiary of
Glanbia.
Extraordinary General Meeting
Glanbia expects to shortly publish a Circular on the Proposed
Transaction which will be sent to shareholders. This Circular will
contain a notice convening the EGM, with date, time and location,
and a shareholder proxy voting form. The purpose of which will be
for independent shareholders to consider, and if thought fit, to
approve an ordinary resolution to approve the Proposed Transaction
and give authority to the Directors to complete the Proposed
Transaction. A further notification will be made by Glanbia upon
the publication of the Circular.
Advisors
Advisors to Glanbia PLC : Corporate finance advisor: IBI
Corporate Finance, Sponsor: Davy Corporate Finance and legal
advisor: Arthur Cox
Advisors to the Society: Corporate finance: EY and legal
advisor: William Fry
ENDS
For further information contact
Glanbia plc +353 56 777 2200
Investor contact:
Liam Hennigan, Head of Investor
Relations: +353 86 046 8375
Media Contact:
Mark Garrett, Director of
Communications & Public Affairs: +353 86 601 9655
About Glanbia plc
Glanbia plc ("Glanbia" or the "PLC") is a global nutrition
company, grounded in nature and science dedicated to providing
better nutrition for every step of life's journey.
Glanbia has deep roots in the dairy industry and has become the
world's leading producer and marketer of quality performance
nutrition products supporting active lifestyles. Its success as a
global ingredients provider has been built on Glanbia's expertise
in nutritional solutions supported by significant investment in
research and development.
With total group turnover of almost EUR3.7 billion in 2016, over
6,000 employees and a presence in over 30 countries worldwide,
Glanbia's vision is to be one of the world's top performing
nutrition companies, trusted to enrich lives every day.
About Glanbia Co-operative Society Limited
Glanbia Co-operative Society Limited ("Glanbia Co-op" or the
"Society") is Ireland's largest and most valuable Co-operative,
with 14,773 members. Glanbia Co-op is the largest individual
shareholder in Glanbia, today holding approximately 36.5% of the
issued share capital of Glanbia.
Glanbia Ingredients Ireland DAC
Glanbia Ingredients Ireland DAC ("GIID") is a 60:40 joint
venture between Glanbia Co-op and the PLC. It is the largest dairy
processor in Ireland, processing a total of 2.2 billion litres of
milk per year with approximately 700 employees and sales revenue of
over EUR836 million in 2016. Its products, the large majority of
which are exported to more than 60 countries, include milk powders,
butter, cheese, whey protein, milk protein and casein. Its
customers include many of the large global food and infant formula
manufacturers as well as more regionally focused players across
Europe, Middle East, Africa and Asia.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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