THE plan for a merger between Avonmore Foods and Waterford Foods now stands a strong chance of success, after approval from the boards of both Waterford Foods plc and Waterford Co-op.
The revised terms of the deal, published early this morning, offer a significant premium on Waterford Foods share price, a guaranteed cash boost to farmers of both groups and the promise of above average milk prices for four years. Also, the Waterford side has been offered an increased representation on the boards controlling the new organisation.
The deal must now be approved by farmers from both coops. Both groups must approve the deal by a 75 per cent majority at two successive extraordinary general meetings. Sources last night speculated that the approval of Waterford farmers could not be guaranteed, but that the improved offer from Avonmore would be hard to reject.
The revised proposal was strongly recommended to Water ford farmers this morning by its chairman, Mr John Dowley, who said it was the basis of a partnership agreement which would benefit both sides. The Avonmore chairman, Mr John Duggan, said that the merger would bring significant benefits to both organisations and create "the largest food company in Ireland".
The merged organisation would have annual sales of £2.5 billion and would be one of Europe's largest dairy processors.
The news that the merger might be hack on was well received by the markets, sending Waterford Foods share price up 12p from 98p to 110p yesterday. As the offer values Waterford shares at 142p, according to today's Waterford statement, the shares should rise further today.
Just two weeks after overwhelmingly rejecting an earlier offer of £281 million, the plc board approved Avonmore's new proposal early yesterday after noon, with just one director dissenting. After a lengthy meeting which lasted some seven hours, the plc board announced approval just after midnight with around a half dozen of the 35 board members dissenting.
The new proposal offers 29 Avonmore shares for every 50 Waterford shares, effectively granting Waterford a stake of close to 40 per cent in the merged entity. The offer values Waterford shares at around 142p, a premium of 78 per cent over the price at which they were trading before the first Avonmore approach in April.
Central to the revised package is a pledge to give greater representation to Waterford members in the enlarged Avonmore Waterford group and particularly on the merged plc board. There will be 13 farmers from each side on the merged board, with Avonmore having 19 directors in total compared to 17 from Waterford.
The rising Avonmore share prices and the revised terms of the offer will grant more to Waterford farmers from the proposed spin out of shares under which the coop's holding in the merged entity would fall from 65 per cent to 55 per cent.
Around £79 million of the enlarged group's shares will be transferred to Avonmore and Waterford farmers, of which around £31 million will go to Waterford shareholders.
Another key aspect - the price of milk paid by Waterford - is to be increased to match that currently paid by Avonmore to its suppliers. This yields an increase of around 4.25p after the recent drop of a penny in Waterford's milk price. Also, a guarantee that the price would remain 3p above the national average as shown in a Craig Gardner survey is being extended by a year and will now run to 2000.
