Kerry Group has won the backing of the Golden Vale board for an increased offer which values the Charleville, Co Cork group at #252 million (£200 million). The revised offer, agreed after intensive negotiations over the weekend, is a mixture of Kerry shares, cash, a special dividend and the interim Golden Vale dividend. Combined, this values Golden Vale shares at #1.5426 each. This compares with the original Kerry offer of #1.37 a share, which was rejected out of hand by the Golden Vale board.

Kerry is still offering the same one-for-10 share swap for Golden Vale shares but has now added a cash element of 13 cents a share as well as a special dividend of three cents and the Golden Vale interim dividend of 1.26 cents a share. The cash alternative is #1.50 a share. The addition of the 4.26 cents in dividends is seen as the key element in getting the recommendation of the Golden Vale board, which had previously made it clear that it would not entertain any offer of less than #1.50 a share.

But contrary to what has been suggested in some circles, the offer does not include any "sweetener" for Golden Vale milk suppliers. The suppliers, who own 12 per cent of the company's shares, will get the same price as Kerry milk suppliers but will also qualify for Kerry Co-op patronage bonuses which will increase the value of the offer.

Market sources are in little doubt that the revised offer is good value for both sets of shareholders. The #1.5426 per share that Golden Vale shareholders will get is the equivalent of 10 times last year's earnings and that is seen as a reasonable earnings multiple for the sector. It is also close to the highest price for Golden Vale shares in the past 10 years.

For Kerry the takeover will be earnings-enhancing from year one, even before the enlarged group generates an estimated #20 million in cost savings and synergies in both milk collection and processing and distribution.

While there have been suggestions that Golden Vale milk suppliers might reject the deal until they get some recompense for the 4p a gallon they claim they are owed for March and April milk, it seems likely that the takeover will succeed as the there is no alternative offer. Institutional investors, headed by Mr Dermot Desmond's IIU with its 12.6 per cent stake and Scottish Provident with 5.3 per cent, will readily accept the offer. The only question is whether they will take Kerry shares or the cash alternative.

For the second time in the space of a few years, Mr Desmond stands to make a sizeable profit from investment in Golden Vale. He is thought to have bought the bulk of his 12.6 per cent stake at #1-#1.10 a share and this could give him a profit of about #10 million, to add to the #6 million profit he made from his first investment in Golden Vale.

If Golden Vale shareholders opt for the one-for-10 share offer, it will result in Kerry issuing 15.9 million new shares, a 9.2 per increase on the number currently in issue. If taken up in full by Golden Vale shareholders, it will result in the Kerry Co-op stake in Kerry group falling from 37.2 per cent to 34.2 per cent.

It will create the second biggest dairy group in the State, with Kerry/Golden Vale's 240 million gallons of milk ranking only behind Glanbia's 300 million gallons. It may put pressure on neighbouring producers like Dairygold and the smaller Munster co-ops to match prices that Kerry will offer its suppliers.