A MERGER between Avonmore Creameries and Waterford Foods could be a catalyst for similar rationalisation - in the rest of the dairy industry, the Avonmore chief executive, Mr Pat O'Neill, has said.

As the management of both groups urged the 5,000 Waterford Co-Op shareholders and 13,000 Avonmore shareholders to vote for the massive merger proposal at special general meetings on Friday, Waterford chief executive, Mr Matt Walsh, said he was confident the necessary 75 per cent endorsement at both meetings would be achieved.

Both Mr Walsh and Mr O'Neill affirmed that rationalisation measures following a merger would not involve any compulsory redundancies.

Mr O'Neill said both Avonmore and Waterford could progress on their own, but rejection of the merger deal would mean losing the opportunity to protect farm incomes at a time of intense pressure on world markets.

"The scale of the competition is getting bigger," he said.

"Major companies today want major suppliers: they want to deal with companies of scale and substance."

One of the reasons for Avonmore's offer, he said, was that it was "at a crossroads of development". There was no question of any further improved offer from Avonmore, he added.

Mr Walsh said the combined organisation would have more resources to put into innovation, development and marketing.

The finance director of Avonmore, Mr Geoff Meagher, confirmed the combined debt of the two groups stood at around Pounds 400 million.

Avonmore began this year with Pounds 10 million of debt, and Waterford with Pounds 215 million. Waterford also has preferential shares of Pounds 50 million, which Avonmore proposes to repay.

The seasonality factor and stocks on hand due for payment bring the total combined debt to Pounds 397 million.

Mr Meagher said their combined businesses should be capable of generating Pounds 50 million to Pounds 60 million of "free cash" to reduce that underlying debt.

It was anticipated the debt could be reduced to less than 50 per cent of capital employed within a couple of years.

"We need each other, in order to get the savings attainable by the combined companies," he said.

On the controversial issue of reduced farmer control, Mr Meagher pointed out that 55 per cent of the shareholding in the merged plc would be held by farmer members of the merged co-op. As individuals, it was estimated farmers would hold up to a further 20 per cent of shares. Thus they would have a solid majority control of the combined organisation - "and farmers traditionally have been very strong holders of their shares; they're not into share dealing," he said.

A rule book drawn up for the merged organisations provides that if there were ever a proposal to reduce the farmer shareholding below 51 per cent, it would require endorsement by a 75 per cent majority at four separate meetings

Probably the single key incentive to farmers to support the merger is the commitment offers to maintain the price of manufacturing milk for 40 months at 3p per gallon above the weighted average price for all creameries other than Waterford/Avonmore in the Craig Gardner audit

The separate special general meetings of the shareholders of the two co- ops will be held in private in Waterford and Kilkenny on Friday. Each shareholder will have one vote and there is no provision for proxies.

If the necessary three-quarters of the attending shareholders vote in favour of the merger, this result must be confirmed by a similar majority at further separate general meetings on July 25th.

. Waterfood Foods director, Mr Stephen O'Connor, has resigned from the board. His resignation will come into effect from August 31st next, the company announced yesterday. Mr O'Connor told the board of his decision yesterday, indicating that he wishes to concentrate on his other business interests. He is currently chairman of An Post and a director of Fitzwilton and National

Irish Bank.

Mr O'Connor told the board that he fully supported the proposed merger with Avonmore, which he said he strongly believed was in the best interest of all its shareholders. "This is a unique opportunity for the shareholders in Waterford to shape and share in a dynamic and progressive dairy food company capable of providing strong leadership to the Irish dairy industry in a time of rapid-change and challenge."