AVONMORE Foods prospects of succeeding in its takeover bid for Waterford Foods are rated as no more than 50/50 by institutional shareholders in both companies.

The same investors were enthusiastic about the Avonmore proposal to combine with Waterford to create a £2.5 billion dairy and meat giant, but conceded that local opposition from Waterford farmers may scupper what most observers believe is a very generous offer.

"Unfortunately, financial realities tend to go out the window in situations like this, with emotions taking over. The 75 per cent voting requirement will be very difficult to achieve even if the Waterford board lends its support," said a fund manager with stakes in both public companies.

"I still think, however, that it is up to the Waterford board and senior management to show leadership and that means telling their shareholders that this is a golden opportunity to rationalise the industry to the benefit of everyone. Mall Walsh has gone on the record on many occasions advocating rationalisation and he has to take the lead on this at the Waterford end," he said.

Area committee meetings of Waterford Co op were held last night and further meetings are likely over the next few days to gauge reaction on the ground to the Avonmore proposals. The feedback will be considered at next Friday's meeting of the boards of both the Waterford Foods and Waterford Co op, but no formal response to the Avonmore offer is expected.

Institutional investors have warned that if Waterford rejects the Avonmore approach, but fries to prop up the milk price at the expense of earnings, then the reaction from the investment community will be negative.

Trading on the stock market yesterday did not reflect any great conviction that the Avonmore takeover will be successful. Avonmore shares closed on 235p, putting a value of 117 1/2p on Waterford shares based on the one for two exchange proposed by Avonmore.

But Waterford shares were unchanged on 100p, a long way off the value put on them by Avonmore. "If there was any real belief that this proposal will work, then the Waterford share price would have risen from loop up some of the way towards 117p," said one market source.