SHAREHOLDERS in Waterford Co op and Waterford Foods will have a 36.5 per cent stake in the proposed Avonmore Waterford Foods.

In addition, Waterford's milk suppliers have been promised substantial increases in milk price as part of the takeover proposal by Avonmore Foods.

The detailed proposal from Avonmore, which was considered by the boards of Waterford Co op and Waterford Foods last Friday, does not go into detail on the level of savings that a merger between the two groups will bring. It does, however, describe the terms as generous and reflecting the underlying quality of the Waterford business.

"Avonmore believes that the approach, if implemented, would result in substantial benefits to both Waterford shareholders and suppliers," Avonmore said in its statement. The Waterford board will meet again next Friday to discuss the approach further, after it has been analysed in detail by Waterford's own advisers.

The details of the proposals are largely as were reported in The Irish Times last Friday, but they show clearly that Avonmore has placed great emphasis on the milk price benefits that the merger would bring and also the preferential level of representation that Waterford would have in the enlarged group.

On both aspects, Avonmore has made attractive proposals, with Waterford milk suppliers being offered the same price as Avonmore currently pays its own suppliers. Avon more pays 3.25p per gallon more than Waterford and has also proposed that a green pound revaluation that would knock a further 3p per gallon off the price of milk would not be passed on to milk suppliers.

As a further sweetener, Avonmore has proposed that in 1997, 1998 and 1999, the enlarged group will pay a milk price 3p above the average as computed by the regular Craig Gardner milk price audit. Waterford suppliers would also benefit from a patronage bonus scheme similar to that currently applied by Avonmore to its existing suppliers.

And as exclusively reported in The Irish Times on Saturday, shareholders in the merged Avonmore Waterford Co op would receive almost £67 million worth of shares in the Avonmore Waterford Foods plc held by the merged coop. Waterford's existing 5,500 coop members would shares £20 million, while Avonmore's 13,200 shareholders would share £46.8 million.

This spin out of shares would reduce the co op stake in Avonmore Waterford Foods from 65 per cent to around 55 per cent.

For a Waterford milk supplier of 50,000 gallons a year, the various components of the milk price offer are worth over £4,000 a year, while the share spin out is worth about £3,600 at the current Avonmore share price. Overall, between the equalisation of the milk price, not passing on a green pound revaluation, and the patronage bonus, the Avonmore proposal on milk prices is worth about £11 million to Waterford milk suppliers.

Between all the various components of the Avonmore offer, the value of the package to Waterford is worth an estimated £40 million.

Avonmore has also gone to great pains to reassure Waterford shareholders that their interests will be represented in the enlarged group. Even though the proposal from Avonmore indicates that Waterford would have 36.5 per cent of the enlarged group, the board of the new co op would have equal representation of Avonmore and Waterford farmers, with 13 members each.

This is seen as crucial for the success of the proposal and may go some way towards reassuring Waterford shareholders who fear loss of control of their business to Avonmore.

On the broader based co op council, Avonmore has proposed that Waterford should have over 40 per cent of the members - again a higher representation than would normally be warranted. The board of the proposed Avonmore Waterford Foods plc would be split 19-13 between Avonmore and Waterford members, again a 40 per cent representation for Waterford.

How the estimated £15 million cost savings will be generated, and where the cuts will fall, will be another major factor influencing the outcome of the offer. But sources close to Avonmore have emphasised that there is no question of the Waterford side taking all of the pain.

"If there is to be rationalisation, it would be where it makes sense," said the source.