Shadow falls on divided Golden Vale

GOLDEN Vale a company that was valued by the stock market at one stage at over £200 million is in a deep crisis. Outside investors with the apparent exception of Dermot Desmond seem to have lost confidence totally in the company and in that regard it matters little whether Jim O'Mahony goes and on what terms.

Golden Vale's current share price, in "the low 70s, is seen as unsustainable given the conflict between the interests of farmers and investors and the uncertainty over the profitability of the group's operations in Ireland, Britain, Holland and Denmark.

The company is riven by divisions between the farmers who control an estimated 60 per cent of the plc shares. The events of the last few weeks, culminating in Jim O'Mahony's removal, have led to a backlash among suppliers and farmer shareholders at what they see as the undue influence of a Dublin based alliance of financial advisers on the operations of the plc.

The public company which runs the operational side of business is now functioning without a full time chief executive, and there are serious doubts in the Irish dairy industry about Golden Vale's ability to recruit a high calibre chief executive. "It's difficult to see anybody senior from outside going into Golden Vale given what's, going on there at the moment" commented one senior figure in the Irish dory industry.

Filling Jim O'Mahony's position from within may also be difficult as senior managers such as Paul Marren and Liam Woulfe are seen as close associates of the sacked chief executive and may not prove acceptable to the majority group on the plc board who voted Mr O'Mahony out of his £300,000 a year job of chief executive.

Sorting out the mess at Golden Vale an urgent matter as the group faces major problems other than the antagonism that on the one hand, exists between pro and anti O'Mahony factions of farmers and on the other hand between farmers and out side investors.

According to local sources, the local an antipathy towards what has been described as "stockbroker interests" has deepened, with a view on the ground that these interests want to run the public company primarily for the benefit of outside investors with the interests of milk suppliers taking second place.

Unlike other agribusiness plc's such as Kerry, Avonmore and Waterford Foods, Golden Vale Co-op has no direct interest in Golden Vale plc, although the co-op's 4,500 milk suppliers are thought to collectively hold in excess of 60 per cent of the plc shares. The balance is held by outside investors, the most recent arrival of which has been Dermot Desmond who currently holds almost 6 per cent of the public company.

One crucial question, to be sorted out quickly is the price of milk to be paid to Golden Vale's suppliers this is an issue, that will probably further divide farmer and investor interests. So far olden Vale has cut its milk price by 3p a gallon for April milk deliveries, but no decision has yet been taken on a further price cut for May deliveries.

A further cut of at least 3p a gallon is warranted based on price movements on world dairy markets an unpalatable prospect for Golden Vale's milk suppliers already facing a £3.1 million super levy fine and a £4 million levy in respect of over quota deliveries in the 1995-96 period.

Imposing price cuts to reflect movements in world markets may meet a frosty response from the 4,500 milk suppliers who are already facing severe cuts in their in come. Any perception that price cuts are being imposed at the behest of the so called "stockbroker interests" is likely to meet strong resistance on the ground.

On the other hand, any perception among investors that the milk price is being propped up at the expense of earnings will meet a frosty response from a Dublin market which has little confidence in the company and which has been with the exception of Dermot Desmond's buying a heavy seller of the shares in the past few weeks.

The problems facing Golden Vale go far beyond the dismissal of its chief executive and the uncertainty over milk prices. There is also serious concern among some investors about Golden Vale's processing operations, particularly the Vonk cheese business in Holland, the Northern Ireland dairy business and a weakening domestic market.

All sorts of rumours are circulating about the Vonk business which Golden Vale bought for £33 million and which has been a near constant drain on the company. Some market sources believe that Vonk will be sold but are sceptical about the sort of price the company could hope to achieve. The Leckpatrick business in Northern Ireland is also thought to be under pressure despite a sharp fall in local milk prices.

Opinions among Dublin brokers are deeply divided. One broker is understood to be telling clients that 30p a share is enough for Golden Vale, although that is very much the bearish view. Few in the Dublin market believe, however, that a share price anything close to the current 73p is not justified and only reflects a view in some quarters that the group's problems will lead to a buy out or merger with another dairy group, such as Dairygold.