Shares in Glanbia jumped nearly 7% after the cheese group agreed the sale of its Irish dairy business for at least E300m, and potentially considerably more.

The maker of cheese for McDonald's, and mozzarella for pizzas, heralded a "transformation" in its prospects through the sale of the businesses around which it was formed to Glanbia Co-operative Society, the group's biggest shareholder.

"This transaction provides the prospect of reshaping the business and unlocking growth and development potential," John Moloney, the Glanbia managing director, said.

"It has compelling strategic logic and creates a focused business with a well established growth strategy."

Value mechanism 

The proceeds from the deal, which will leave Glanbia as a maker of cheese in the US and UK and global supplier of ingredients and nutritional supplements, will be used to pay down net debts which totalled E442.6m as of the start of the year.

"This will increase financial flexibility and enable the continuing group to implement its growth strategy," Glanbia said.

However, the exact payment will depend on the co-operative's success in selling some 100m Glanbia shares it is disposing of to pay for the acquisition, which will hand it ownership of Ireland's largest dairy processor, and Irish foods business and an agricultural retail chain.

Glanbia and the co-operative are splitting the risk should the shares sell for less than E2.65 apiece and reward should they achieve more than that. The mechanism also sets a cash payment of E49.7m and a minimum price of E300m.

Assuming the co-operative sold its shares at Monday's closing price of E3.05, it would pay E343m.

The shares stood 6.6% higher at E3.25 in morning deals in Dublin.

'Very advantageous'

Indeed, the disposal was welcomed by analysts, with Nigel Lynch at Goodbody saying it would prompt a re-rating of Glanbia shares.

"Once the disposal of the Irish business is completed, Glanbia will be viewed as a high growth and expansive global nutritional and cheese business," he said.

At NCB Stockbrokers, Paul Meade said the deal was a "very advantageous move" for the company.

"It reduces its debt [and] facilitates an exit from an unpredictable profit centre to focus exclusively on higher… businesses," he said, forecasting Glanbia's earnings per share would grow at double digit rates.

The deal will also, in a two-step process, cut the co-operative's direct stake in Glanbia to 10% and its boardroom positions from 14 to, eventually, one, cutting a big barrier to any future acquisitions of the group.

'Increased volatility'

The disposal follows a poor year for the Irish dairy unit, which recorded a "major" loss as the prices of its products fell more sharply during the recession that the cost of its milk.

"The complex interplay of regulatory, supply and demand factors has led to a marked increase in the level and scale of price volatility in global dairy markets," Glanbia said.

The co-operative said that the deal offered a "unique" opportunity to revamp the business's strategy.

"In particular, there is an exciting opportunity to expand Irish milk output in the context of emerging changes in EU regulation of the industry," said Liam Herlihy, the chairman of both Glanbia and the co-operative.