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Predicting mergers and acquisitions in the food industry

  • Adesoji Adelaja

    (Department of Agricultural, Food and Resource Economics, Cook College, Rutgers University, 55 Dudley Road, New Brunswick, NJ 08901)

  • Rodolfo Nayga

    (Department of Agricultural Economics, Texas A&M University, 334 Blocker Building, College Station, TX 77843-2124)

  • Zafar Farooq

    (Copelco Capital, Inc., One International Boulevard, Mahwah, NJ 07430)

Two logit models are estimated to explain merger and acquisition (M&A) activities in US food manufacturing using firm level data for public firms: a “target model” predicting the likelihood of a firm being targeted for M&A and a “takeover model” predicting the likelihood of a targeted firm being taken over. Target model results suggest the importance of firm liquidity, debt|leverage, profitability, growth in sales, stock earnings capacity, percentage of common stocks traded in the stock market, and market-to-book ratio. Activity or turnover ratio, firm size, and price-earnings ratio were not statistically significant. Takeover model results suggest the importance of degree of officer control, attitude surrounding the transaction, number of prior bids, existence of litigation during negotiations, and involvement of the bidder and|or target in other takeovers during negotiations. With predictive accuracy of 74.5 and 62.9%, respectively, these models suggest the systematic nature of M&A activities. © 1999 John Wiley & Sons, Inc.

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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 15 (1999)
Issue (Month): 1 ()
Pages: 1-23

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Handle: RePEc:wly:agribz:v:15:y:1999:i:1:p:1-23
Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Palepu, Krishna G., 1986. "Predicting takeover targets : A methodological and empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 8(1), pages 3-35, March.
  2. Dodd, Peter & Ruback, Richard, 1977. "Tender offers and stockholder returns : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 5(3), pages 351-373, December.
  3. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  4. Stevens, Donald L., 1973. "Financial Characteristics of Merged Firms: A Multivariate Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 8(02), pages 149-158, March.
  5. Bruce W. Marion & Donghwan Kim, 1991. "Concentration change in selected food manufacturing industries: The influence of mergers vs. internal growth," Agribusiness, John Wiley & Sons, Ltd., vol. 7(5), pages 415-431.
  6. Langetieg, Terence C., 1978. "An application of a three-factor performance index to measure stockholder gains from merger," Journal of Financial Economics, Elsevier, vol. 6(4), pages 365-383, December.
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