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Does acquisition of a cooperative generate profits for the buyer? The Dairyworld case
Article first published online: 10 NOV 2011
© 2011 International Association of Agricultural Economists
Volume 42, Issue Supplement s1, pages 89–100, November 2011
How to Cite
Lamprinakis, L. and Fulton, M. (2011), Does acquisition of a cooperative generate profits for the buyer? The Dairyworld case. Agricultural Economics, 42: 89–100. doi: 10.1111/j.1574-0862.2011.00554.x
- Issue published online: 10 NOV 2011
- Article first published online: 10 NOV 2011
- Received 24 October 2010; received in revised form 2 June 2011; accepted 2 June 2011
- Mergers and acquisitions;
- Yardstick of competition hypothesis;
- Agrifoods International Cooperative Ltd;
This article examines the takeover of a cooperative (Dairyworld) by an investor-owned firm (Saputo) that was not previously present in the industry, determines if this takeover generates greater returns for the investor-owned firms (IOF), and on the basis of this evidence makes some inferences about the behavior and performance of cooperatives and IOFs. The empirical evidence strongly supports the conclusion that Saputo's stock price rose with its takeover announcement. This outcome is consistent with a number of explanations, including that Saputo was unaffected by hubris, a factor often suggested as the reason that many firms overbid when they undertake acquisitions. Dairyworld's poor liquidity and capital shortage problems, as well as a limited number of suitors, may have weakened its bargaining position in its dealings with Saputo. The observed increase in Saputo's stock price is also consistent with the possibility that, by taking over a cooperative, Saputo was able to decrease competition and thus increase its profits. A fruitful area for future research would be a rigorous theoretical and empirical determination of the impact that these various factors have on acquisition profitability. Such analysis is required before inferences about the behavior and performance of cooperatives and IOFs can be fully answered.