The impending Kerry take-over of Golden Vale has been hailed as the most surprising and exciting development in the dairy industry for many years. So why, just days after the proposed offer was made, did a majority of the plc's directors decide to propose a vote of no confidence in Golden Vale's chief executive, Mr Jim Murphy?.

It is something many people in the food industry are pondering and, since crystal balls don't look backwards, people are delving into the files of the past and recent past of the north Cork food processing business in their search for an explanation.

Undoubtedly, there is frustration among farmers who are milk suppliers and shareholders about some developments since Mr Murphy took the helm at Golden Vale. This came to a head when a board majority - 11 out of 17, with two abstentions - decided they should vote no confidence in his stewardship.

On legal advice, however, they opted not to proceed with the resolution. It has been "parked", but has not gone away.

Some 13 Golden Vale directors are farmers although their role on the board is to represent shareholders rather than their own agriculturally-based constituency. Just 35 per cent of shares are owned by farmers and their families; of that cohort, 14 per cent of shareholders are milk suppliers.

In no particular order, issues concerning farmer directors include:

the failed bid for Prize Foods, a British consumer foods company, which they say they were informed was worth £130 million (€165 million) but which Golden Vale failed to purchase after spending some £2.5 million on research; it is now on the market for about £60 million;

English food firm Dairyborn, bought by Golden Vale for £8 million lost £1 million in 2000;

Mr Murphy did not dispose of the loss-making Charleville milk processing plant - not least to the milk suppliers themselves who had been suggested by him as one of a number of potential buyers.

Some of these matters are small cheese in the case of a big company like Golden Vale. But they mount up and the cardinal sin, as far as the farmers were concerned, was Mr Murphy's failure to interact with them personally.

Golden Vale farmers have always been a bolshie lot and have spoken their mind on many occasions over the last 20 years. They have seen chief executives come and go and have treasured their independence. Those board members who are also farmers have understood always that they represent shareholders rather than farmer/suppliers and have acted accordingly, often - they now consider - at variance with what they might have done as farmers. Indeed, their annual remuneration - some £6,000 (€7,618) plus an attendance fee at meetings of £80-£90 a day - compares unfavourably with what the three non-farmer directors receive.

Between the time the 11 farmer directors presented their no confidence motion - unofficially to Golden Vale's company secretary, Mr Seamus Lynch, on June 18th - and the next board meeting on June 21st in Dublin - the legal machine went into first gear.

Legal opinions sought by both sides were in broad agreement. Mr Murphy could seek an injunction to stop the directors' vote and could seek "exemplary damages against the signatories", his solicitors said. For his part, the Golden Vale legal adviser said the timing of the farmers' action "could not have been more unfortunate".

In the end, the Golden Vale directors had no choice in voting unanimously for the Kerry offer.

Much as Kerry's Mr Denis Brosnan may say he wants to have the farmers on board before he clinches the deal, the reality is that Golden Vale shareholders have little option but to accept the Kerry offer, which in the words of one supplier "will be good for the shareholders in Dublin 4".

To his credit, Mr Murphy has made Golden Vale a very saleable listed company and nobody can deny that.

The farmers can huff and puff about whether they will transfer their milk to Kerry. In reality, they have no choice. There is little spare capacity in the milk processing sector and neighbouring milk processors have no intention of crossing swords with Mr Brosnan for the Golden Vale milk.

Many Golden Vale suppliers are angry that the business they built up is being sold from under them - a view shared by many of the farmer directors - but facts are facts.

Some two million gallons of milk which was to have gone to Tipperary and Nenagh co-operatives on July 1st has not been taken up because these co-operatives have a "working relationship" with Kerry.

Dairygold has a similar "working relationship".

Kerry's formal offer of €1.5426 per share, which values Golden Vale at €245 million, has been sent to the shareholders, who have until August 2nd to accept it.

Farmer/directors of Golden Vale stand to gain nothing from the take-over, except their P45s. Most of them have received a very small annual remuneration, while non-farmer directors have earned around €25,000 per annum.

The biggest single beneficiary from the Kerry deal will be Mr Dermot Desmond, who, as of the end of 2000 had 11.59 per cent of the issued share capital. Mr Murphy, for his part, had 550,000 share options at the end of last year and was granted an option on a further 150,000 shares.

eshanahan@irish-times.ie