Now to win the hearts of Waterford farmers

NOW for the hard part. Avonmore Foods has overcome one of the major hurdles in its bid for Waterford Foods by getting the backing of both the Waterford Foods plc board and the coop board. But now it must win the hearts and minds of the Waterford farmers, who must approve the deal by a 75 per cent majority at two general meetings. Meanwhile, Avonmore's own farmers must also approve the proposal.

"It will be like an election campaign," one observer commented last night, with both Waterford and Avon more management set to make a major effort to gain acceptance for the deal in a campaign" which will probably be kicked off today. When it is recalled that Kerry CoOp farmers voted by a majority of 80 per cent to 20 per cent to reduce their shareholding from 51 per cent to 39 per cent - a move which made many of them millionaires overnight - it is clear that achieving the required 75 per cent majority in Waterford may be no easy task.

Also, news that around half a dozen of the 35 farmer members of the Waterford Co Op board rejected the deal show that achieving the magic 75 per cent figure cannot be taken for granted. However, Waterford farmers will find it hard to turn down the offer.

Waterford rejected Avonmore's initial approach, feeling that the Kilkenny group was targeting Waterford when it faced difficulties, and that it would be very much the junior partner in the merged entity.

The revised offer from Avonmore was pitched to overcome these obstacles, offering more shares to Waterford farmers and, crucially, giving them a much higher level of representation on the boards of the merged entity. However, it is still clear that Mr Pat O'Neill of Avonmore would lead the new organisation and that the Kilkenny based group would be the senior partner.

The revised offer has been hammered out over the past few weeks by advisers on both sides. It was therefore little surprise given these contacts that the Waterford plc board approved the offer with just one board member dissenting. The coop board finally decided early this morning to also give it the nod.

It is, by any standards, a generous offer a total of around £337 million. It values Waterford shares at 142p a share and improves their holding in the merged entity to close to 40 per cent, compared to 36.5 per cent in the original plan.

The improved terms of the share offer - under which 29 Avonmore shares will be offered for every 50 Waterford shares - are obviously an attraction to the Waterford farmers. They may reflect that the alternative, retaining independence or forging closer links with their other neighbour, Dairygold, would not offer such direct benefits. But two other factors are also crucial.

One is the increased representation being offered to Waterford farmers. Under the revised terms, both Avonmore and Waterford will have equal farmer representation on the plc board, with only a higher presence of other directors from Avonmore giving them a 19 to 17 majority. In the initial deal proposal, Avonmore had a 19 to 13 majority on the plc board.

Crucially, Avon more has now said that for the first four years, the chair of the two boards will be held for two years each by representatives from the two sides. And then from 2000 onwards the thinking is that the merger would be completed and the board could be rationalised and the chairman elected in the normal fashion.

This is the equivalent of Avonmore bending over backwards to ensure that Waterford farmers do not feel their interests will be outflanked.

Finally, Waterford management and farmers will take into consideration that business conditions remain difficult. The coop has recently cut another lp off milk prices for farmers, which makes the Avonmore offer that it will match its milk price and maintain a 3p differential over the national average under the year 2000 - all the more attractive. And the UK cheese market - now a key one for Waterford after its acquisition of The Cheese Company - may be facing a difficult period.

But observers believe that while this makes approval from farmers likely, it can by no means be taken for granted.

And, of course, Avonmore's own farmers have also to approve the plan, under which their neighbours from Waterford are being offered a good deal.