Avonmore Waterford has had a good run over the past week, with the share finally breaking through the 300p barrier. There seems to be a growing belief in the market that the Irish rationalisation programme still in dispute with the unions will eventually be sorted out although AWG may have to accept some modifications to its master plan.

But events in the British dairy industry are also supporting the share price, notably the decision by the Monopolies and Mergers Commission to investigate whether Milk Marque is abusing its power in the £4 billion British dairy industry.

Like the other processors, AWG takes about two-thirds of British milk supplies from Milk Marque, the farmer-controlled former co-op. If the MMC decides that Milk Marque is abusing its position, and the dairy processors have long protested that this is the case the AWG and the other processors could benefit in the form of lower milk prices.

And the long-awaited rationalisation in the British dairy industry may finally be about to get under way, with the decision by Northern Foods to demerge its Express Dairies arm and float it off as a separate plc. Analysts are divided on whether that means Express will become a bidder for other dairy companies or may become the focus of a bid from an overseas group like French giant Danone.

Express has about 25 per cent of the British liquid milk market and would no doubt be an attractive target for AWG, if the Irish group was not preoccupied with its post-merger rationalisation programme and reducing the estimated end-1997 debt of around £350 million.

With its balance sheet in that sort of shape, there is clearly no way that AWG could even contemplate a tilt at Express, which last year turned in operating profits of almost £45 million sterling in a year when its margins were severely squeezed.

The commitment to retain the Avonmore Waterford Co-op holding in AWG at a minimum of 55 per cent means that AWG has virtually no flexibility when it comes to major acquisitions. It has to use debt for acquisitions and it is hardly in a position to take on much more debt until the current borrowing mountain is substantially trimmed.

A £350 million end1997 debt means that interest charges are covered only 2.2 times, according to company broker Davy. That level of interest cover could not be allowed to fall further through more debt being taken on to fund any large-scale British acquisition.