There is general agreement that a link-up between Kerry and Golden Vale makes eminent sense. There is equal agreement that Kerry's offer of #1.37 a share is not enough and is not, as Kerry claims, "fair and reasonable".

With the shares solidly bid at #1.47 on the Dublin market last night, sources believe Kerry may have to increase its bid closer to #1.60 - or more than #250 million - to be confident of success.

To say that yesterday's statement from Kerry was a bombshell is no understatement. If Kerry was going to do a sizeable deal, most expected it to be yet another big expansion in the ingredients business - certainly not a bid for an Irish dairy/ consumer foods company.

Kerry's formal approach to acquire Golden Vale just 24 hours before its annual general meeting is seen as an effort to force the Golden Vale board to come to the table and agree terms on a recommended offer. "There's no question it's an opening pitch and there's more cash available," said one market source.

Kerry has refused to comment beyond last night's statement, but it is understood that the group has not made advance approaches to any of Golden Vale's institutional shareholders. About one-third of Golden Vale shares are in institutional hands, with the biggest single shareholder being Mr Dermot Desmond's IIU with 12.6 per cent. Scottish Provident is the next biggest with 5.4 per cent.

Already, Mr Desmond is looking at another windfall from Golden Vale, to follow the £4 million profit he made from his first investment in the company some four years ago.

Kerry is also being opportunistic by targeting Golden Vale while it once again is under pressure from its farmers about the price of milk. It is understood that about 15 per cent of Golden Vale shares are held by milk suppliers and these will probably be attracted by the guarantee of Kerry's milk price. In the past, Kerry has tended to subsidise its milk price from its huge overseas profits and this could be a telling factor when milk suppliers decide on an offer.

But is the #1.37 a share offer fair and reasonable, as Denis Brosnan has claimed? The price is 8.6 times Golden Vale's 2000 after-tax earnings and that is little more than half Kerry's own ratings in the market. Golden Vale sources are adamant the offer is far too low and that Kerry will have to pay up for the synergies it claims would be generated by merging the two organisations.

"He (Denis Brosnan) isn't going to get those synergies on the cheap and there's no way he will get a recommendation at anything like this price," said one source close to Golden Vale. "The board would definitely talk if there is a full offer on the table, but bidding at bargain-basement levels just won't fly. He's trying to buy a right plum in his own backyard on the cheap," said the source.

Kerry made great play in its statement about its approach being in a spirit of co-operation but, ultimately, it will come down to what price Kerry will pay to get the support of the Golden Vale board. The only alternative to that is a hostile bid and that would be very definitely a last resort for Kerry.

While most of Kerry's growth in recent years has come from its world-wide ingredients business, about one-third of its #2.6 billion sales comes from consumer foods through brands like Denny, Walls, Dawn and Ballyfree. With some sources suggesting that Kerry may struggle to maintain the strong growth in its ingredients business, the group may be focusing once again on expanding its consumer foods business.

Almost two-thirds of Golden Vale's #759 turnover last year came from its consumer business, where the group has successfully expanded from a commodity dairy processor to a consumer foods and food service business based on prepared meals, cheese and spreads (Golden Vale is the biggest producer of cheese slices for fast food chains in Europe), milk and cream liqueur. There is no question that there are huge synergies between the two consumer businesses. The big question is the value one attaches to those synergies.

And unlike Golden Vale, which wants to off-load its Charleville dairy plant to the farmers, the Kerry approach is for the business as a whole. Once again, there is no disagreement that merging Kerry's 110 million gallon milk pool with Golden Vale's 120 million gallons offers huge opportunities for savings, both in milk assembly and processing.

But where does this new-found commitment to Irish dairy rationalisation sit with Denis Brosnan's regular comments to Kerry annual general meetings that he was not interested in expanding into a sector restricted by quotas.

Admittedly Kerry and Dairygold have been co-operating on milk collection and processing with Kerry milk being processed in Dairygold plants and vice versa. But a formal offer for a company like Golden Vale is still something of a Pauline conversion for the outgoing Kerry chief executive.