Date of Award
Master of Science (MS)
Committee Member 1
Food and agribusiness in the U.S is a dynamic and ever changing business. The industry has seen booms and busts, considerable consolidation, and continued globalization in the past few decades. Businesses operating within its sectors have had to demonstrate flexibility and adaptability as the industry’s landscape consolidates at the consumer, supplier, and producer level. One strategy companies have used to grow and position themselves throughout years of industry consolidation has been merger and acquisition (M&A) transactions.
During the eleven years from 1985 and 1995, the food industry was listed in the top 10 M&A most active industries ten times. It was counted in the top five for six of those years (Adelaja et al. 1999). This highlights the significance M&A has played in food and agribusiness. Despite the prevalence of M&A, there exists much dispute on the value of it, and whether it is beneficial to shareholders at all. The impact of M&A on shareholder value and company performance following a transaction or transaction’s announcement is the focus of this paper.
M&A transactions are analyzed in the short and long run according to the abnormal returns calculated following a transaction’s announcement. The long run impact is further analyzed using changes in financial performance following a transaction. Abnormal returns are calculated using the market and market adjusted normal returns models. Generalized sign z and Patell z statistical tests were used to analyze cumulative abnormal returns over multiple event windows. The conclusions of this paper focus on the 0-1 day event window and the calculations are subject to backdating. Average cumulative abnormal returns for acquirer shareholders were found to be roughly 1% following a transaction’s announcement for the 0-1 day event window, while target shareholders reported a 17% gain. Both results were statistically significant at the .05 or less level.
Long run buy and hold abnormal returns (BHAR) for acquirers were measured over the event window -1 to 36 months following a transaction’s announcement. The market adjusted model reported a mean loss of 7.6% for acquirer shareholders during this time period. Detrimental long run performance is further supported by the analysis of financial metric changes in acquirer firms during the years following a transaction. Asset turnover, debt to equity, and return on equity were found to be lower on average in the years following a transaction than prior.
Lastly, OLS regressions were used to examine drivers of abnormal returns. Acquirer abnormal return regressions report variables reflecting acquirer return on assets, target return on assets, cash transactions, and transactions in the food and beverage retailing industry as all statistically significant factors impacting acquirer return. Coefficients for transactions in food and beverage retailing as well as cash transactions were positive. Acquirer and target ROA variables had negative coefficients in acquirer return OLS regressions. Target abnormal return regressions report variables reflecting cash transactions, hostile transaction, and competitive transactions as all statistically significant factors impacting returns. The coefficients on these variables were positive. Short run market and market adjusted model abnormal returns were found to be very correlated and differ greatly only in long run calculated returns.
Ringelberg, Josiah M., "Mergers and acquisitions in food and agribusiness: Returns, drivers, and long run performance" (2016). Open Access Theses. 992.