The board of Tirlán has made a proposal to members to allow a rule change which would give them greatly increased flexibility in how they deal with investment decisions in the future.

The proposal also includes the spin out of 15 million Glanbia shares to co-op members, which at the current market value would be worth just over €24,000 to the average member.

That spin out, if approved at the SGM, will likely be completed in the second quarter of 2025.

Under the rules of the co-op, Tirlán is obliged to hold a minimum shareholding in Glanbia of 17%.

The proposal from the board, if accepted by members, would lead to the abandonment of that level, removing completely the obligation for the co-op to hold any shares in Glanbia at all.

The co-op’s 75 million shares in Glanbia are equal to just under 29% of the company. Tirlán has already internally allocated over 30 million of those shares (see Figure 1) so the spin out of the further 15 million would breach the 17% minimum under the current rule.

Background

Tirlán, previously Glanbia Co-op, has spun out more than 60 million shares in Glanbia since 2013, steadily reducing its stake from over 50% to its current level. When the co-op undertakes one of these operations it is not selling shares in Glanbia, rather it is swapping members’ shares in the co-op for shares in Glanbia.

If members vote in favour of the proposal they will be given, at current market value, 441 shares in Glanbia for every 1,000 co-op shares they have.

In turn, 138 of their co-op shares will be cancelled, leaving them with 862 shares in Tirlán Co-op and 441 shares in Glanbia. This is known as a paper for paper transaction, and means that the value of their overall holding should not increase.

The advantage for the members is that they now have shares in a publicly listed company which are easily tradable, and so can be sold whenever they want. Historically, members who have received Glanbia shares in the past have held on to them. If the shares were to be sold, there would be a capital gains tax liability which would have to be met.

Ambitions

Speaking to the Irish Farmers Journal in the wake of the announcement, Tirlán Chief Executive Officer Seán Molloy said that the rule change would give the board the flexibility to diversify its investment portfolio.

Tirlán already has 15 million shares earmarked for its investment fund for which Chief Investment Officer Frank Tobin has been tasked with finding a home. Molloy said that while they have yet to make use of that fund, they have looked at opportunities and have come close to making investments.

Should the 17% cap be abolished, that would allow an extra €460m, which could be potentially used for investments, once the spin out is complete. This would take the total available for investment to around €650m – at today’s Glanbia share price.

Molloy said that while there is no particular investment that the board is close to approving, the flexibility allowed by the rule change would give the board the widest possible scope when looking at opportunities for diversification.

Under the rules of the co-op there would be no requirement for the board to get the approval of members before making a decision on spending.

Molloy said that going to the members for approval would risk jeopardising any potential investment, but added that the corporate controls in place mean that no decision on spending could be taken lightly by the board.

No hard feelings

A spokesperson for Glanbia said: “The Co-op has been a strong, highly supportive shareholder of Glanbia over many years. As the Co-op enters the next phase of its development, we fully understand the desire to create flexibility around its future investment strategy.”

As previous share spin outs have led to very little actual selling of Glanbia shares, the company should be confident that there will not be any significant reduction in its share price when the transaction completes. Tirlán suggested that, should members vote in favour of the proposal, then it would be the second quarter of 2025 before the transaction would be completed.

Comment:

Ireland’s largest co-op has generally stuck to its knitting as it expanded production capabilities and upgraded facilities over the past number of years.

Molloy put the net asset spend since 2013 at €780m, while also pointing to the current very low debt-to-earnings level at the co-op, saying it is in a strong financial position.

Speaking earlier this week, Molloy declared that the period of expansion in dairy is over, and that the next phase for the industry will see a period of consolidation and rationalisation.

With the possibility of up to €700m to spend, Tirlán certainly seems to be in a very strong position to take advantage of any opportunities this next phase might throw up.

However, if the ambition of the board is aimed at achieving diversification as well as flexibility, it may best serve members by finding an investment or investments that have very little to do with dairy processing.

That could be something as boring as buying a share index fund, a bond portfolio, or some other financial product that would give a regular annual return.

Molloy said the board’s ambitions for their investment would be to provide long-term value for “this generation and generations to come,” which would suggest that the co-op is looking for an investment which would both diversify the income and also help to secure earnings for the very long term.