IIU, the investment company controlled by financier Mr Dermot Desmond, has increased its stake in foods group Golden Vale to almost 12.6 per cent after buying another 1.6 million shares. The shares were bought on Thursday when Golden Vale was trading at around €1.04 (82p).

This is the first time since last January that Mr Desmond has been in the market for Golden Vale shares. He has never commented publicly on his investments in Irish food companies such as Golden Vale and Greencore, where he also has a 14 per cent stake.

Some market sources have suggested Mr Desmond may simply be putting his money into Golden Vale as an investment. Three years ago, Mr Desmond built up an 8 per cent stake in Golden Vale before selling the shares to institutional investors at a £5 million profit.

But given the similarity between many of Golden Vale's and Greencore's operations, others believe the financier may have the aim of merging the two companies to create a larger entity which would enjoy a better rating than either company currently enjoys in the market and in which he would have a substantial stake. Golden Vale currently trades on a historic price/earnings of less than six while Greencore's historic p/e is less than eight.

Both Golden Vale and Greencore have moved away in recent years from their original dependence on dairy processing and sugar manufacturing respectively to become closer to the consumer as more broadly-based branded foods companies.

Greencore, which reports interim results next week, is the market leader in chilled pizzas, speciality sauces and certain speciality breads. It has recently become the largest supplier of sandwiches to the British market with its acquisition of Hazlewood Foods. The group also has its original core sugar and agribusiness operations, although it has made it clear that its future lies in consumer foods.

Under chief executive Mr Jim Murphy, Golden Vale which last year withdrew from a £130 million acquisition by the British group Prize Foods, is the leading supplier of sliced cheese to hamburger restaurants in Europe. It has expanded aggressively into frozen ready meals business through Rye Valley Foods. Golden Vale is also in the process of trying to reduce its exposure to dairying by offloading its dairy processing business in Charleville to its milk suppliers.