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Avonmore deal creates giant milk group

Two of Ireland's largest dairy companies are to merge to create one of the world's five largest milk group's. Avonmore Foods has agreed a deal with rival Waterford Foods which values the company at pounds 377m. The deal has been agreed by Waterford's board just weeks after it turned down a pounds 281m offer from Avonmore.

If approved, the merger will create a company with pounds 2.5bn of sales and a serious rival to the UK-based dairy groups such as Unigate, Northern Foods and Dairy Crest. The combined group will be called Avonmore Waterford and will account for more than 10 per cent of the UK liquid milk market. It will also have 20 per cent of the UK cheese market.

Directors of the two companies said the deal would enable the enlarged group to achieve greater economies of scale. Analysts expect the company to achieve annual cost savings of pounds 20m.

Shares in Waterford Foods soared 25p to 120p. Avonmore shares closed 7p higher at 225p.

One analyst said: "The dairy industry is ripe for consolidation. This could be the first of many much bigger deals which could involve UK companies."

Ross Buckland, chief executive of Unigate agreed saying the merger was "logical" and reflected the importance of size in competitive markets with low inflation. "We will have a bigger, better competitor. We wish them qualified success," he said.

The deal values each Waterford share at 142p, a 78 per cent premium to their closing price last Friday Under the terms of the merger, shareholders in Waterford will receive 29 Avonmore shares for every 50 Waterford shares held.

However, the deal could still be blocked by the local co-operative groups of farmers who own 68 per cent of Waterford shares and more than 60 per cent of Avonmore's. The deal requires a 75 per cent majority of both sets of shareholders.

Investment column, page 22