AFTER Denis Brosnan's strong hints in recent weeks that Kerry Co-op may soon allow its holding in Kerry Group fall below 51 per cent, the Kerry chief executive has now set a July 1997 target to have the rule changes in, place.
A series of internal groups are at work laying the groundwork for what will be one of the biggest corporate restructuring in the history of Irish co-ops. A spokesman for Kerry said that the proposed rule changes might be ready for presentation to the co-op annual general meeting, but if this target is not met extraordinary general meetings to approve the rule changes will take place later this year.
The aim will be to have the required rule changes in place by July 1997, when 2,000 new co-op shareholders will be admitted as loan stock is converted into co-op shares.
Despite Kerry's power to generate free cash to pay down debt, there are compelling financial reasons to cede the co-op's control, say analysts.
Two reasons are cited for the need to break the co-op control of the plc. The first is to release some value to the co-op's 5,000 shareholders who, through the coop, own shares in the group worth over £440 million even though their co-op shares still have only the nominal value of £1 each.
One route would be for the coop to place shares directly with the farmers and possibly tie that in with a placing with institutions, with a claw back option for farmers who might want to reinvest some of their windfall back into Kerry Group.
And despite Kerry's ability to pay down debt and reduce gearing, analysts believe the Kerry balance sheet is one in need of equity, if Denis Brosnan wants fulfil his ambition to do another DCA scale deal in 1997 or 1998. Shareholders' funds are currently £330 million, but this includes £310 million worth of goodwill.
The level of debt being paid down is unlikely to be sufficient to bring the group into a position to duo a DCA type deal. This is particularly the case if Kerry wants to do medium sized acquisitions, like the £54 million Ciprial purchase earlier this year, while building itself up for a large scale deal in a couple of years time.
If and when the 51 per cent coop stake goes and Kerry looks to institutions for fresh equity, it will find out quickly how attractive overseas investors find a group which is trading on a premium to its European peer group. Kerry will no doubt emphasise that the group deserves to be compared to American ingredients companies against which it trades on a discount.
Irish institutions underweight in the tightly held Kerry shares will probably support any share issue, despite Kerry's high ratings.
