The successful merger of Avonmore and Waterford is likely to set in train several other mergers in the dairy industry over the next two years, analysts have predicted. Mr Liam Igoe, of Goodbody Stockbrokers said that, as Avonmore Waterford Group (AWG) will be by far the largest player in the dairy sector, it will change the whole landscape. "I think there will be an acceleration of the consolidation process," he said.

The new group will have sales of £2.5 billion, operating profits of more than £100 million and a huge cash flow. It will be the fourth largest dairy group in the world. The combined group will control over one-third of the Irish milk pool, with 375 million gallons, and have 15 per cent of the liquid milk market in Britain.

When the various operations are taken into account in Ireland, Britain and the US, the merged group's milk pool will amount to more than one billion gallons. It will also have a cheese business producing almost a quarter million tonnes a year and a meat business processing 1.7 million pigs and 1.7 million sheep a year.

In addition, AWG will pay 3p per gallon over the industry average for three years after the merger. Mr Igoe said there are a lot of small dairy co-ops in the country whose margins are already being squeezed and will remain so because the merged group will be keeping prices up.

"A lot of smaller co-ops will seek alliances with bigger operators such as Dairygold and Golden Vale, " he predicted.

Mr Igoe said the merger would act as a catalyst for modernising the whole dairy industry. He pointed out that Avonmore and Waterford were themselves products of mergers.

However, he said, since then, Ireland had fallen behind the rest of Europe and New Zealand. "It is the start of a catch-up phase, which is also a good thing," said.

He predicted that both groups' share price will appreciate in the short-term, before pausing for breath, as the merged entity is bedded down. "There is a lot of momentum behind the share price at the moment, but it will cap out in the next month to six weeks," he said.

Mr Igoe said he had been a bit surprised by the large margin of approval from Waterford shareholders, but paid tribute to Waterford chief executive, Mr Matt Walsh, and other senior managers for managing the merger so well.

He said the two companies "fit hand in glove" and now have a very substantial business. Unlike a lot of other operators who merge and tend to be local, both have substantial interests outside Ireland, he added. "Very few other dairy processors have continental milk pools, most companies are very local by nature," he said.

Avonmore chief executive, Mr Pat O'Neill, said last night that he could not give profit forecasts because of stock exchange regulations. However, analysts have forecast that AWG will be looking to generate savings of between £15 million and £20 million a year through rationalising the milk collection system, better use of plant and a lower number of employees. It is estimated that up to 700 people could be offered voluntary redundancy.

From end-1997 debt of £280 million, analysts are expecting debt to fall to £230 million by then end of next year, and to fall further the following year.