Cooperatives' Merger Strategies: The MD Foods - Klover Maelk Case

Since March 1999 the two largest dairy cooperatives of Denmark, MD FOODS and KLOVER MAELK have merged after a long relationship ranging from joint ventures (such as the P-AMBA and M-AMBA companies) to various alleged price wars. We point out that the main reasons for merger from the point of view of MD FOODS were: (i) to establish monopoly power on the domestic market, (ii) to pursue an international growth strategy, (iii) to exploit rationality and coordination gains in the operations. Further, the merger counters the threat of (iv) an alleged foreign take-over of KLOVER, (v) further pressure by the Danish Competition Authority, and (vi) the increased concentration through mergers taking place in the dairy and retail industries in Europe. The post-merger period exhibits some signs of price increases, mainly in the fermented milk market, whereas the price of fresh milk is still to catch up. Questions still remain as to the long term implications of the merger: Will the retailers react by importing milk and dairy products from Germany, The Netherlands, Sweden or elsewhere? General questions still remain as to the governance problems in large cooperative organisations. Relations between farmer-members and management went through a critical test. Since MD FOODS is now openly flirting with yet another merger, this time with Swedish ARLA, these problems may perpetuate. In addition, it is not certain whether this time they will overcome as easily as they have up to now European and national anti-trust regulation.