Glanbia is in talks over selling its historic Irish dairy business to the group's main shareholder, after a year in which the division suffered its first ever loss.

The Irish-based dairy group said that Glanbia Co-operative Society, which has a 54.6% stake, had "expressed an interest" in an acquisition which offered a "unique opportunity to transform" the company.

The deal would substantially return to the co-operative Ireland's largest dairy processor and a farm supply business - operations around which the group was built, and which are valued at E250m-300m by Irish broker NCB.

Glanbia would retain the ingredients and cheese operations it has built, largely through acquisitions, over the past decade, with expansion into countries including Germany, Nigeria and the US.

Financial elbow room 

The deal would "increase the group's focus on international nutritional ingredients and cheese", besides "significantly" improving its financial flexibility, Glanbia said.

The company's net debt, at E442.6m at the end of last year, was equivalent to nearly three times group earnings before interest, tax, depreciation and amortisation (ebitda), signalling a substantial, if not oppressive, debt burden.

The co-operative, meanwhile, would "have more control and influence over the businesses that really matter to them", a Glanbia spokesman told Agrimoney.com.

The company has its history in Avonmore Creameries and Waterford Co-op Society, which both listed in 1988 before merging in 1997 and adopting the Glanbia name two years later.

'Performance was severely impacted' 

The businesses the co-operative would acquire saw ebitda slide 35% to E45.2m last year, with the core Irish Dairy Ingredients unit, which processes some 1.4bn litres of milk a year, suffering a "major" loss.

"Performance was severely impacted as raw material costs did not fully reflect the fall in product prices on global markets," Glanbia said.

Agribusiness sales and profits fell as a fall in agricultural incomes curbed farmers' spending on feed, fertilizers and sprays.

However, an improved performance abroad, notably thanks to increased sales volumes of ingredients such as whey, helped the group limit to 21% its fall in underlying earnings, which came in at E78.3m.

'Ideal exit route'

The announcements received a mixed response from investors, who initially sent Glanbia shares up more than 5%. However, the shares closed down 2.7% at E2.53 in Dublin.

Davy analyst Paul Meade said that the disposal would, by focusing Glanbia on its faster-growing operations, have a "significant positive impact" on the group's performance next year.

"The restructuring discussions… provide a ideal exit route for the [company] from its lower margin businesses in Ireland and removes the potential for future conflict between the [company] and Irish dairy farmers about the price it pays for raw milk," Mr Meade said.

"The deal, if successfully agreed, paves the way for Glanbia to accelerate its investment in nutritionals while removing any onus on it to reinvest in the more volatile Irish business."

A deal would leave the co-operative with a Glanbia stake of less than 30%, Mr Meade added.

While the co-operative currently appoints 14 of Glanbia's 20 directors, this entitlement would be changed by a deal, the company spokesman said.