The merger of Avonmore and Waterford to create a £800 million foods giant may have been the major event of 1997, but the indications are that the year ahead will see few other Irish dairy groups follow the lead of Avonmore and Waterford.
Virtually everybody involved in the dairy industry accepts that the industry needs to rationalise further and that there is no room for the plethora of Irish dairy processors.
But apart from suggestions that Lakeland, NCF and Kiltoghert may be inching tentatively towards a merger and renewed speculation of a merger of the four west Cork co-ops, there is no sign that the lead set by Avonmore and Waterford will be followed.
The merger of Avonmore and Waterford may have created a dairy group big enough to compete with the giants of the world dairy industry. But to put this merger in context, it should be noted that some of Avonmore/ Waterford's competitors in the US process more milk than the entire Irish milk quota.
The movement towards merger and consolidation in the US, Europe and New Zealand is increasing and most of the processors in the Irish dairy industry are far too small to be able to compete in the new world dairying environment. For that reason, many in the industry were astonished when the new Golden Vale chief executive, Mr Jim Murphy, said the Charleville co-op had no interest in merging with anybody else in the dairy industry - mainly on the basis that dairy commodity prices are set to fall and there is little point in having any further exposure to such an industry.
This is the same argument advanced by Mr Denis Brosnan for Kerry's unwillingness to merge its operations with another processor. The difference, however, is that Kerry has an enormous international food ingredients business which allows it to support its Irish dairy business and the price it pays its suppliers for milk. Golden Vale does not enjoy that luxury.
Golden Vale's institutional shareholders - nursing their wounds after a dismal couple of years - seemed to take different approaches to that of the new chief executive. Mr Dermot Desmond's IIU seems happy and increased its stake to 8 per cent, Royal & Sun Alliance sold its entire 5 per cent stake in one fell swoop. It remains to be seen which investor was right.
As for the merger between Avonmore and Waterford, the merger process turned out to be a far smoother process than many thought was possible.
Even the presence of a vocal ginger group opposed to the very concept of the merger with Avonmore failed to derail the process. The final vote of 83 per cent of Waterford Coop in favour of the merger was far higher than was expected. Many observers had expected at best a wafer-thin vote in favour and the final vote in favour was an indication that the individual financial benefits of the agreement had won over any waverers among the Waterford Co-op shareholders.
For Avonmore chief executive, Mr Pat O'Neill, the merger was a triumph. Five years after Waterford pulled out of a merger which would have given it the majority of a merged co-op, he now stands at the helm of a group in which Avonmore management has clear control. The management team heading the merged group is drawn heavily from Avonmore and there is no question about who is in control of Avonmore/Waterford Foods.
The merger - and it has been specifically described as a merger not a takeover - was planned in detail. Avonmore made an approach, but left itself with enough slack to be able to lift its offer after the inevitable initial rejection by the Waterford board. Once the figures were right and the final offer got the approval of the Waterford Co-op board, acceptance of the Avonmore offer became increasingly likely. The absence of any real alternative strategy was probably a key factor in winning over enough of the Waterford shareholders to bring acceptance above the crucial 75 per cent level.
For Kerry, most of whose food ingredients business is outside the country and independent of the dairy industry, it has been a year of consolidation. This year, however, should see a period of aggressive expansion, especially if Kerry is successful in its bid for Dalgety's food ingredients business.
This would be the final piece in the jigsaw of Kerry's ingredients business, giving it a major presence in Britain to add to its prime position in the US and its strong presence in continental Europe. Kerry may, however, have to put up with the inconvenience of having to buy Dalgety's flour business as part of any deal with the British group. Dalgety has made it clear that it wants to sell the foods business as a unit, with a price tag of over £300 million.
If Kerry wins, and it faces strong competition from Garry Weston's Associated British Foods, it is unlikely that it will retain the flour business for long. Nowhere does a flour business fit into the Kerry long-term plan and Mr Denis Brosnan has shown no inclination to become involved in a basic commodity business like flour milling. An early disposal to ABF, Greencore, Spillers management, venture capital groups European flour miller would no doubt be a priority.
For Greencore, it has been a dismal year with the share price slumping from 390p to a low of 290p before staging a recovery in recent weeks. A £6.6 million EU fine, a boycott by beet growers of its farm inputs products and a strike at the sugar plants only added to a view that there was an absence of strategic direction among Greencore management.
The statement with the full-year results, however, went some way towards assuaging these concerns. Investors took comfort that Greencore has no plans to have any greater exposure to the US sugar industry and the concentration will be on acquisitions in Britain. A successful bid for Pauls Malt and a share buyback would go a long way towards restoring Greencore's standing in the market and reassure investors that the management is heading in the right strategic direction.
Last year was also a period of major developments at IAWS, whose fortunes have waxed as fortunes at Greencore have waned. The major event at IAWS has been the £51 million acquisition of Cuisine de France, a buy that emphasises the growing movement in emphasis at IAWS towards consumer foods.
The acquisition was welcomed by the market, but some observers feel that IAWS has paid a high price for Cuisine de France and that Mr Philip Lynch will have to sweat the assets and grow the business to justify the price. Generating that growth will fall to Cuisine de France founders Pat Loughrey and Ronan McNamee.
These two entrepreneurs have a great incentive to grow the business they founded and meet the profit targets set for the next five years - one fifth of the purchase price is in the form of earn-outs. For IAWS itself, the next year is likely to be a period of consolidation after its biggest ever acquisition.
For Dairygold - the biggest pure co-op in the country - it was a year of consolidation, with Mr Denis Lucey resisting the blandishments of the Waterford Co-op rebel shareholders to make a counter-bid for Waterford. Such a move was never on, given Dairygold's absence of any capability to raise money through equity.
Dairygold, however, is in a pivotal position if there is to be further co-op rationalisation and mergers - especially in the southern half of the country. With a strong balance sheet, Dairygold may be heading for an active corporate period, with further British acquisitions seen in the industry as a priority.
