Glanbia Co-op announced this Thursday that it had raised a quarter of a billion euros from institutional investors through exchangeable bonds backed by a portion of its shareholding in the global Kilkenny-headquartered food giant Glanbia PLC.

The farmer-owned co-op intends to use the debt issue to part-fund the acquisition of the 40 per cent stake it does not yet own in Glanbia Ireland, the domestic dairy and agribusiness division and the largest buyer of Irish milk and grain.

The co-op’s members voted in favour of the acquisition last month and the deal, expected to be approved by other PLC shareholders shortly, will take Irish-based operations and consumer brands such as Avonmore out of the Glanbia group.

Management is understood to have won the confidence of farmers by pledging to fund the acquisition with a majority of debt, rather than a massive sell-down in Glanbia PLC shares at a price that remains far below historic highs of between €17 and €20 between 2015 and 2019.

The co-op announced on Thursday that it had agreed the sale of 5.75 million PLC shares at €12.25, raising around €70 million for Glanbia Ireland’s full takeover, bringing its shareholding in Glanbia down to 30.5 per cent (though this may creep higher a bit as the PLC is pursuing a share buy-back programme in parallel).

This leaves the vast majority of the €307 million Glanbia Ireland acquisition to be covered by the co-op’s debt issue.

In a further announcement to the London Stock Exchange, Glanbia Co-op said the bonds would bear a fixed interest rate of 1.875 per cent. They are exchangeable against Glanbia PLC shares owned by the co-op, with an initial exchange price for the bonds set at a premium of 35 per cent to the current price of the underlying shares. 

This premium has allowed the PLC to back the €250 million bond issue with a pledge on just 15.1 million PLC shares worth €185 million at the current price. Bondholders are essentially given a choice between collecting their coupons until the bonds mature in January 2027, or redeeming them at a profit against Glanbia stock if the PLC’s share price increases by 35 per cent or more in the meantime.

The bonds will be listed on the Frankfurt stock exchange for trading this summer. Goodbody placed both the shares and the bonds involved in the transaction, along with banks BNP Paribas, HSBC and Rabobank.

This is the second time Glanbia Co-op borrows directly from the market. In 2016, it placed €100 million worth of similar five-year exchangeable bonds backed by its Glanbia PLC shares to fund an advance payment system established to enhance the liquidity of its farmer members.

The terms offered to bondholders appeared less favourable at the time, with a 38 per cent premium between Glanbia’s share price and the bond’s initial exchange price, and a 1.375 interest coupon. Another difference is that Glanbia stock never hit the premium required to redeem the bonds at a profit after the 2016 issue, while the dip in the PLC’s share price since then – and the turnaround performed by the group during the pandemic –  arguably make the prospect of a profitable exit above and beyond coupon interest more likely for investors this time.