Milk Link, the UK's most progressive farmer-owned dairy enterprise, has announced that it has acquired full ownership of The Cheese Company, the largest producer of cheese in the UK. The deal includes the purchase of Glanbia plc's 25 per cent minority shareholding in The Cheese Company together with £35.0 million of Secured Subordinated Loan Notes (issued to Glanbia as part of the original transaction in 2004) for a total consideration of £47.2 million. The deal is being financed by a consortium of three major banks: Lloyds TSB, Rabobank International and Barclays on improved and more flexible terms. This replaces existing facilities provided by Rabobank International and Lloyds TSB Commercial Finance.
The Cheese Company is the largest cheese producer in the UK, with strong positions in cheddar, Stilton and British territorial cheeses, supplying the retail, food service and ingredient sectors. For the period ended 1 April 2006, The Cheese Company generated profits before tax of £5.6 million compared to a loss of £3.6 million in the prior year.
The deal enables Milk Link to take full control of the strategic direction and earnings of The Cheese Company and is a key step forward in the co-operative's objective of delivering increased returns to its dairy farmer members. In particular, the original terms of The Cheese Company joint venture between Glanbia and Milk Link established in 2004 contained a number of restrictions designed to safeguard Glanbia's position and secure the repayment of its loan notes. Central to this was a restriction on distribution of profits until the Glanbia loan notes had been repaid (scheduled for 2018 at the latest). The repaying of Glanbia's investment means the restrictions can be removed allowing part of the profits of The Cheese Company to be returned to Milk Link and as such processing profits from cheese will be able to flow back to its Members.
Commenting on the acquisition Barry Nicholls, Milk Link Chief Executive said,
"The full acquisition of The Cheese Company is another major step forward in the development of Milk Link. The fact that three major banks were keen to finance the deal on much improved terms I believe demonstrates our increasing financial strength and confidence in our long term strategy.
"The deal is a good one for Milk Link and our Members. Since 2004 when we took a 75 per cent stake in The Cheese Company, the business has made strong progress, with a substantial increase in profits and reduction in working capital being used to reduce debt. The deal we believe represents fair value for Glanbia's investment to date but does not incorporate a premium for the recent improvement in the performance of The Cheese Company. At the same time we have been able to acquire Glanbia's loan notes at a significant discount to their nominal value.
"The strong performance of The Cheese Company has been mirrored by the strong relationship developed between Glanbia and ourselves and I am pleased that we will continue to have a number of key commercial arrangements with them going forward.
"The deal is also a necessary and positive step forward in the rearranging of Milk Link's finances. Full details on the final arrangements, resulting lower debt funding costs and the positive financial implications for Members will be discussed with the Milk Link Council as part of its next scheduled meeting at the end of January and communicated to our Members as soon as possible thereafter."
