BUSINESS OPINION:Despite the positive spin put on the co-op/plc's split, it's hard not to feel that a good company could be wrecked, writes JOHN McMANUS

EVERYBODY, FROM the board of Glanbia down to the Irish Farmers’ Association, is trying to put a positive gloss on the company’s decision to split itself in two after several decades as that peculiarity of the Irish market: a co-op/plc.

In the normal way that should be reason enough to be suspicious. Plenty of plausible arguments for the split can and have been made, but it’s hard to escape the sense that a good company is being wrecked simply because its shareholders cannot agree what is more important: the price it pays for milk or the need to expand internationally.

The plenary view – for want of a better word – is that the plan to sell the group’s Irish dairy business back to the co-operative society from which Glanbia sprang is a win-win.

In theory it will give the society control of the businesses that buy its members’ milk and thus, within reason, it can pay them what they want. It may be simplistic to characterise the farmers who own the society as interested in nothing more than the price of milk. But it is the most obvious manifestation of the “better alignment of interests” which is seen as the main advantage of the farmers taking control of the Irish business.

The “win” from the point of view of the plc, which, after the split, will consist of the group’s substantial US cheese business and its international nutritional products business, is that it would be free of the dead hand of the society’s 54.64 per cent shareholding and thus be able to grow.

The trouble with win-win is that it really doesn’t happen in business. It’s generally impossible for someone to make money unless another person loses money. Somebody is going to lose out if Glanbia gets split up, the question is who?

The obvious flaw in the win-win argument is the overlap between the businesses that the plc is prepared to sell to get out from under the society and the nature of businesses it wants to keep. The Irish businesses might have somewhat more pedestrian names, but the bulk of them are in the same area, milk processing.

The real difference is that the Irish business buys its raw materials from the members of the company’s largest

shareholder, while the US and international businesses buy from whomever they want as cheaply as they can.

This raises the question as to why would you sell a hat full of good businesses in your core area to fund a growth strategy that involves buying similar businesses from someone else?

The answer is that you wouldn’t do it unless you wanted to destroy shareholder value or had some other overriding reason. It’s pretty clear that in the case of Glanbia the overriding reason is that the management of Glanbia feel they can no longer serve two masters: the society and the “ordinary” shareholders.

Are the plc shareholders the losers then? Possibly. The deal could well destroy shareholder value, but equally could be seen as a step back in order to take two steps forward.

If the plc shareholders are not the losers, what about the society members?

They are 8,000 strong and would appear to be the kingmakers in all this. They will have to approve the deal by a 75 per cent majority at the meetings held to consider it.

Given that only half of the 8,000 members are actually dairy farmers, the society board could have a harder job than might be thought of convincing its members a break-up is a no-brainer.

The fortunes of Ireland’s pure co-operatives is mixed at best. None of them have managed to emulate the success of the big Danish, Dutch and New Zealand co-ops.

It is an open question as to whether the internal dynamic in the society – which has brought Glanbia to this current impasse – will also stymie the society after the split. Unless the society board can make a convincing case that Glanbia’s post-split co-op can galvanise and lead the wider Irish co-op sector somewhere significant, then the members who can think beyond the milk price should think twice about voting for the split.

They risk finding themselves the losers in this “win-win” scenario.

They could be shareholders in a co-op without ambition that overpays for raw materials, while looking on in some annoyance in a few years when a multinational food group buys out the plc at a multiple of the value put on its shares in the transaction currently being contemplated.