Evaluating Glanbia's Moves

January 22/Limerick, Ireland/Business Monitor International Ltd. (BMI) -- Irish dairy firm Glanbia is continuing to pursue growth in the sports nutrition sector and has announced the purchase of U.S. firm Bio-Engineered Supplements and Nutrition (BSN) for $144 million. The announcement was greeted positively by investors, with the firm's share price rising by as much as 5% on January 19 2011. The move follows the acquisition of U.S. bodybuilding supplement producer Optimum Nutrition in 2008, and the firm's strategic push in this direction has so far been successful, with the nutrition unit delivering strong sales and earnings growth over the last two years.

Earlier in 2011, Glanbia attempted to spin off its less-dynamic Irish dairy unit to concentrate on building scale in the more attractive areas of nutrition and cheese. However, Glanbia's attempt to separate its dairy division -- Dairy Ireland -- from its consumer products business was thwarted after the Glanbia Co-operative Society, which owns 54.6% of the firm, voted against the deal.

The deal would have seen publicly listed Glanbia retain ownership of the international food business, which is primarily focused on the U.S. cheese and nutrition segments, while the Glanbia Co-operative Society would have purchased control of the Irish dairy and agri-operations -- the unit most closely aligned with its interests -- for around 340 million euros. The deal would have freed Glanbia to focus on higher growth areas and given it a strong capital base to build on its recent international expansion.

However, only 73% of the society's farmer-owners voted in favor of the proposal, falling short of the 75% needed to advance the acquisition. The move would have given Glanbia significant funds to accelerate its expansion in its chosen sectors. However, the latest deal suggests the firm remains financially capable of expanding its nutrition unit even without the split, albeit at a more modest pace.

Glanbia now generates revenues of 600 million euros from its nutrition unit and the firm's commitment to this part of the business leads BMI to believe that it will eventually attempt to resurrect its plans for a split. Dairy Ireland had been hit hard by the Irish economic recession, with operating profits halving to 24 million euros during 2009. However, the division has registered a turnaround in 2010 on the back of higher dairy prices, and BMI believes it will now be easier to convince the cooperative that the move is in its interests.

The cyclical nature of the dairy industry means that the dairy unit's profitability is likely to continue to recover. However, this ongoing recovery may mean that Glanbia's other shareholders will demand a higher price, putting the negotiations back to square one. This means it could now be some time before Glanbia can divest the dairy unit. However, BMI believes the underlying logic is compelling, and this deal will eventually be done, putting Glanbia in a position to focus on its chosen high-growth sectors to deliver stronger growth and earnings that are less susceptible to swings in global commodity prices.   

From the January 24, 2011, Prepared Foods' Daily News
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