THE Avonmore/Waterford merger should result in savings of £10 million plus in the first year, Avonmore's chief executive Mr Pat O'Neill has said. The merger, if approved, will be worth at least £6,500 to each farmer, he added.

Both companies declined to forecast what profits the merged entity could generate, hut a figure of around £90 million in the first full year of operation was not denied.

The agreement by both Waterford boards boosted Waterford's share price by 15p, to 125p, although they hit 127p in earlier trading. This reflects a view in the market that this amended deal will be approved by the Waterford shareholders. Avonmore shares were up 6p to 251p.

By the end of the first year borrowings of the merged group are expected to comprise around 50 per cent of shareholder funds which are £450 million.

"The aim of the merger is to increase profit levels and share-holder value for everyone," Mr O'Neill said. It was expected that the new company would return savings "north of £10 million" in the first year, continuing on an upward curve, thereafter.

The companies hope to finalise the merger, which must be approved by 75 per cent of share-holders, within two months, or three at the outside. An intensive campaign to explain the deal to farmers begins today.

Mr O'Neill said the total value to farmers in terms of cash and shares would be £115 million. This comprises £80 million (the value of the spin out of the co-op and plc shares which will be worth £30 million to Waterford share-holders and £50 million to Avonmore shareholders) and milk benefits of £11 million per year for the next three years, he said.

He predicted that there would be downward pressure on milk prices in the future. He said there was no doubt that prices would be modified under GATT and farmers incomes would be under pressure. He added that this was part of what was driving the merger process.

The headquarters of the merged company will be at Avonmore's headquarters in Kilkenny and Mr O'Neill will be managing director until he retires in three years. Mr Matt Walsh, who is currently chief executive of Waterford, will also be on the board.

The merger will make the new company the fourth largest dairy company in Europe. Although it may involve job cuts, neither side was willing to forecast on what scale.

Waterford's chairman, Mr John Dowley, admitted that the decision to recommend the merger to its shareholders had not been an easy one to make. He said Waterford was a fine company with a proven history "which could better fulfil its destiny under the proposed merger".

Mr Dowley said Waterford was recommending the new Avonmore offer because it was a great improvement on the original offer, which Waterford felt did not fully reflect the value of the company. He added that Waterford had been considering the issue of consolidation for some time

Mr Walsh said Waterford had to consider the global market place and the long-term future of the industry. He said one of the immediate effects for farmers, apart from the pledge of 3p above the national average milk for three years, would he a 1p saving per gallon on milk collection costs.

Mr O'Neill said there would be substantial cost savings in the long term. He said there was great synergy between the two companies and many of their businesses over-lapped in Ireland, Britain and the US. He said there would be significant benefits on the purchasing side and they would also be able to avoid duplicating each other on the distribution side.

He said only time would tell which operations would be sold off. "We have to look at disposals, we are not simply in the business of buying businesses." But Waterford has already put its Wisconsin cheese business and its British fruit juice business up for sale, and these disposals are likely to proceed.

Both sides said they were confident that the merger would he approved by shareholders in both companies. Mr Dowley acknowledged that winning 75 per cent approval was "a very high hurdle to cross" and could not he taken for granted. However, he said gaining such approval was not unprecedented in the dairy industry.

Mr O'Neill said the companies would be co-operating fully with the Competition Authority.