A meeting scheduled for Monday between directors of Golden Vale and Kerry Group has been called off by Golden Vale.
It is understood that Golden Vale informed Kerry yesterday that its proposed €1.37 a share offer was inadequate and there was no point in the two sides meeting with an offer at that level.
It had been thought that next week's planned meeting, which would have been at the highest level, might have triggered a higher offer from Kerry in an effort to get the support of the Golden Vale board. But now Golden Vale has decided to adopt an aggressive stance and has, in effect, told Kerry that its offer must be increased before it will sit down and talk.
This sort of shadow-boxing is not unusual in takeover situations and market sources believe that, despite Golden Vale's cancellation of Monday's meeting, the two sides will get together in the near future, even if it is through indirect contacts between each other's advisers.
And despite reports that Mr Dermot Desmond may be willing to sell his 12.6 per cent to Kerry if it increases its offer to €1.50 a share - a 10 per cent increase on the current proposed offer - informed sources said it was highly unlikely Mr Desmond had committed himself to any price for his shares at this stage of the bid.
No comment was available from Mr Desmond's office yesterday.
Kerry is, at some stage, expected to increase its proposed offer for Golden Vale to one Kerry share for every nine Golden Vale shares, or the equivalent of €1.50 in cash.
Kerry has already indicated that it will offer its shares on a one-for-10 basis to Golden Vale shareholders, but an improvement in the share exchange to one-for-nine seems to have a good chance of getting the support of institutional shareholders who control about 40 per cent of Golden Vale shares.
Institutional shareholders in both Kerry and Golden Vale would not comment publicly on the surprise proposed takeover bid. But a number of institutions with shares in both companies said that while the proposed €1.37 a share offer was definitely too low, they would not be unhappy with a €1.50 offer.
"Golden Vale says the offer price is inadequate and we would agree, it's pretty clear it's an opening bid and that more, but not an awful lot more, is available to get the backing of the board," said one institutional shareholder with a foot in both camps.
"People would no doubt be a lot happier with more than nine times earnings, but it remains to be seen whether Kerry is willing to bid up to that level," he said.
He added that the attitude of Mr Dermot Desmond would be key to the outcome. "If he's happy to take €1.50 as has been suggested then everybody else will follow," the fund manager stated.
Another institutional shareholder said: "€1.50 will cement the deal. You could argue that it's cheap but nine or 10 times earnings is not unreasonable. I wouldn't get into an argument about it when I'm being offered highly-rated Kerry shares for relatively lowly-rated Golden Vale shares."
He added: "The last thing we want to see is Kerry to walk away, if they do then Golden Vale is back down to €1.00 or less."
Both fund managers said they would probably take Kerry shares rather than cash if the offer proceeded. With more than half Kerry shares either owned by Kerry Co-op or by individual farmers, the shares are notoriously illiquid and difficult to buy.
A one-for-nine share swap for Golden Vale shares would result in 17.7 million new Kerry shares being issued if all Golden Vale shareholders opted for the share offer.
While the Golden Vale board is clearly irritated at the opportunistic nature of the proposed bid from Kerry, informed sources said the board was acutely aware that its ability to press for a much higher offer was limited.
