Glanbia plc has effectively abandoned its goal to become a world class food company and today announced that it has conditionally agreed to dispose of its Irish Dairy and Agri Businesses to Glanbia Co-operative Society Limited, its 54.6 per cent shareholder for up to for up to €343m.

The Irish dairy and agri-business comprise three main business units - diary ingredients Ireland, consumer products and agribusiness, as well as Glanbia estates, group business services and Irish joint ventures and associates. The argument is that the deal will free up Glanbia plc to pursue its global cheese and nutritional ambitions, while the Co-op farmers get control of brands like Kilmeaden, Avonmore and Yoplait.

Commenting today, John Moloney, Group Managing Director of Glanbia plc said:"In a changed global dairy market environment, the time and opportunity is now at hand to recognise and embrace the need for transformation. This transaction provides the prospect of reshaping the business and unlocking growth and development potential for both the Society and the Company. For Glanbia it has compelling strategic logic and creates a focused business with a well established growth strategy, underpinned by improved financial flexibility. For the Society, achieving full control of the Irish Dairy and Agri Businesses, will create a dynamic organisation focused on driving growth and development for farmer members."

Commenting today, Liam Herlihy, Chairman of the Group and the Society said: "The last few years have demonstrated that global dairy markets and the Irish dairy sector are in a period of profound change. A unique opportunity exists for the Society to build a new strategy, structure and business model that best serves the interests and needs of our members. In particular, there is an exciting opportunity to expand Irish milk output in the context of emerging changes in EU regulation of the industry. Gaining ownership and control of key strategic Irish assets puts members in an excellent position to capitalise on these changes and the Board of the Society looks forward to the successful completion of this transaction and to building a sustainable future for all our members."

Glanbia presentation

Goodbody's Killian Murphy commented: "Glanbia this morning confirmed that it is to dispose of its Irish business to the Glanbia Co Op. The total disposal proceeds will amount to €343m (based on last night’s share price) comprising of a placing of 102m shares (reducing the co op’s stake from c.55% to 20%) and a cash component of €49.7m. There is a risk sharing mechanism in the deal structure whereby if the net placing price is greater than €2.65 the placing value will be adjusted downwards. In addition, the Co op will assume responsibility for the related pension deficit (c.€50m).

The disposal is conditional on disposal proceeds being “no less than €299.6m”. The disposal is expected to be completed no later than June 15. The deal structure is broadly in-line with our expectations and should leave Glanbia with an underlying FY10 EPS of circa 27c. Last week Glanbia held investor days in London and Dublin, which focused on the US Cheese & Global Nutritionals (the entire group post disposal). Once the disposal of the Irish business is completed, we believe Glanbia will be viewed as a high growth and expansive global nutritional and cheese business and therefore warrant a re-rating. This underpins our positive stance on the stock and hence we are reiterating our Buy recommendation."

SEE: Finfacts article, Sept 2009; Ireland: A "smart" economy in food better than pie-in-the-sky aspirations? - - Dutch cheese production is about six times the Irish level; Irish business consultants Mazars, said in 2008 that despite being 12,000 miles away from European markets, New Zealand had become increasingly competitive for its chilled lamb and their lamb exports to the EU had increased 40 per cent in the previous two years.

Meanwhile, the Irish Farmers' Association has been focusing on protectionist measures for Irish beef while an Irish steak franchised restaurant is a rare if not non-existent presence across Europe, where the Brazilian, Argentinean and Uruguayan brands are in the ascendant.