Marketing-Related Motives in Mergers & Acquisitions: The Perspective of the U.S. Food Industry

197 Pages·2002·13.15 MB·English

by  Denise Dahlhoff (auth.)

Denise Dahlhoff
Marketing-Related
Motives in Mergers
& Acquisitions
The Perspective of the U.S. Food
Industry
Denise Dahlhoff
Marketing-Heiated Motives in Mergers & Acquisitions
GABLER EDITION WISSENSCHAFT
Denise Dahlhoff
Marketing-Related Motives in
Mergers & Acquisitions
The Perspective of the U.S. Food lndustry
With a Foreward by Prof. Dr. Henrik Sattler
Springer Fachmedien Wiesbaden GmbH
Die Deutsche Bibliothek-CIP-Einheitsaufnahme
Dissertation Universitat Jena, 2002
1. Auflage Juni 2002
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ISBN 978-3-8244-7669-5 ISBN 978-3-663-10736-1 (eBook)
DOI 10.1007/978-3-663-10736-1
Foreward V
Foreword
Mergers and acquisitions (M&As) have been a preferred growth strategy of fums, becoming
even more popular in recent years with U.S. companies. Often, transaction prices reach Ievels
ofbillions ofEuros (e.g., Kraft Foods' acquisition ofNabisco in 2000). It is noteworthy that
the motives of such transactions are not limited to material assets. lmmaterial market-based
assets, such as brands, have played an increasing role. Both practitioners and academics have
widely recognized brands' significance for companies. Until now, however, research has
neglected to investigate the importance of market-based assets in M&As. This research
provides a tool which can be used to quantizy the relative importance of market-based assets
that are ofparticular interest in M&As.
The contribution of this research is twofold. The first contribution is the examination of
specific M&A motives in the U.S. food industry based on a sample of recently proposed
M&As and their influence on shareholder value drivers. The second is the development and
empirical application of a measurement tool. This tool is able to quanti:ty motives of
particular M&A cases and their relative importance.
The empirical examination of specific M&A motives in the U.S. food industry is based on a
systematic analysis of M&A news articles and company announcements during the period of
1998 to 2000. The sample comprises 29 cases all with transaction values greater t4an $300
million. These analyses are augmented by twelve transactions by Europe-based fums. Based
on the identified motives, a taxonomy of M&A motives is then developed. In total, twelve
main motives were found, eight of which were IIllliketing-related. The dominant motives
were determined to be brand motives, product-related motives, distributional capaeines and
resources, and market share and market leadership goals. These findings are consistent with
various studies in the M&A field which employ different methodo1ogies. These motives are
discussed in detail with respect to their potential impact on shareholder value.
The new methodology for measuring the importance of M&A motives is a specific
application of conjoint analysis which is uniquely combined with the balance model
(Farquhar and Rao 1976). The conjoint study utilizes the identified M&A motives as its basis
and employs logit analysis to estimate the model. The intricate model and the findings are
explained in clear detail.
This text is valuable reading with innovative methodology and intriguing findings. It is weil
written and will serve both researchers and practitioners as a solid introduction to companies'
rationale to pursue M&As from a markering perspective. I hope that this book receives the
well-deserved recognition within the academic and business communities alike.
Prof. Dr. Henrik Sattler
Acknowledgments VII
Acknowledgments
When I started my research in brand evaluation, food companies seemed to be in the midst of
a major wave of acquisitions. Among the mostprominent cases were Unilever's acquisition
ofBestfoods, the largest deal to date in the food industry, Kraft Foods' purchase ofNabisco,
and PepsiCo's acquisition of Quaker Oats. It appeared that many acquiring firms were pri
marily motivated to broaden their brand portfolios. This observation, along with the Iack of
research surrounding marketing-related motives of M&As, prompted me to focus my thesis
studies on this topic. I chose the U.S. food industry since, at that time, I had just arrived in
the U.S. for a 'ten-week' research visit at Cornell University.
I feel indebted to several people for their unwavering support throughout my doctoral
studies. First, I want to acknowledge and thank my thesis advisor Professor Henrik Sattler,
Ph.D. for his input and guidance throughout all stages of my program. His support was truly
exceptional and greatly appreciated, especially since I remained in the U.S. for the entire
program. Moreover, his relationship with Professor Vithala Rao, Ph.D. at Cornelr s Johnson
School made my research visit possible.
I would also like to sincerely thank Professor Vithala Rao for his mentorship. It was a
privilege to work with such an accomplished marketing scholar. His door was always open
and he was warm and welcoming from the beginning. It was his initiation and encouragement
that allowed me to teach marketing at the Johnson School for two semesters, something I had
never even considered. It has been an invaluable experience.
The vastness and quality of the Johnson School's resources played a crucial roJe in my
research. I am especially appreciative ofthe school's hospitality and generosity and want to
thank Vithala Rao and John Elliot, Ph.D. for their support and trust. I have truly enjoyed
being part ofthe Johnson School community.
For feedback and input on the study design and early drafts of my thesis, I would like to
thank Jaihak Chung, Sriram Venkataraman, and RalfSchlottmann. Foreditorial help, I want
to thank Bill Bihlman, Betsy Grant, and Rhian Ellis.
I also owe thanks to my committee at the University of Jena, particularly the Dekan
Professor Koschmieder, Ph.D. for accommodating my atypical status and Professor Hehn,
Ph.D. for serving as co-evaluator of my thesis. Also, I would like to thank Mrs. Schwinger
for her special effort and helpfulness. For fmancial support, I want to thank the Landes
graduiertenförderung ofThüringen, Germany for a stipend, the Cornell Graduate School for a
tuition fellowship, and Sawtooth Software, Inc. for software for the conjoint study.
Along this journey, my friends and family were wonderful supporters. In particular, I
would like to thank my parents, especially my mother, Renate Dahlhoff. They taught me
many essential values and I am very grateful for everything they have given me.
Finally, I want to especially thank Bill Bihlman. He has been a profound source of
encouragement, energy and cheerfulness ( 'think green! '). When work seemed daunting and
endless, he helped me to regain perspective and a positive attitude. Life with hirn areund was
much richer and so much more enjoyable.
Denise Dahlhoff
Table of Contents IX
Table of Contents
List of Tables ··········································································································-············XI
List of Figur es ·································································-·················································XIII
List of Appendices ............................................................................................................. XV
1 Introduction ......................................................................................................................... 1
2 Rationale ofM&As and Conditions ofthe U.S. Food Industry ....................... 9
2.1 V alue creation as a principal directive of cotporate actions ............................................... 10
2.1.1 Stockperformance and shareholder value concept ................................................ 10
2.1.2 Drivers ofshareholder value ................................................................................... 15
2.2 Descliptors of growth strategies .......................................................................................... 17
2.2.1 Dimensions of expansion and scheme ofbasic growth strategies ......................... 17
2.2.2 Interna! versus extemal growth strategies ............................................................... 20
2.2.2.1 Extemal and intemal ways of growth ......................................................... 20
2.2.2.2 Shareholder value impact of intemal and extemal growth strategies ........ 23
2.3 Recent situation and developments in the U .S. food industry ............................................ 27
2.3.1 Manufacturer level: competitive structures and conditions in the
U.S. food market ..................................................................................................... 27
2.3.2 Distribution Ievel: developments in the grocery retail sector. ................................ 29
2.3.3 Consumer level: trends in consumer behavior and demographic shifts ................. 37
2.4 Summary and conclusions ................................................................................................... 39
3 Analysis of Motives in Recent Food Industry M&As ....................................... 41
3.1 Methodology and taxonomy ofmotives .............................................................................. 41
3 .1.1 Research methodology ............................................................................................ 41
3.1.2 Taxonomy ofmotives .............................................................................................. 48
3.1.3 Method ofanalysis. .................................................................................................. 52
3.2 Findings and discussion ....................................................................................................... 55
3.2.1 Central results .......................................................................................................... 55
3.2.1.1 M&A rationales across borders: motives ofU.S. and European
acquirers ...................................................................................................... 55
3.2.1.2 Structure ofthe frequency ranking ............................................................. 55
3 .2.1.3 Integration of the leading marketing-related motives into the
framework ofmarket-based assets ............................................................. 57
3.2.2 Leading M&A motives and their shareholder value impact .................................. 60
3 .2.2.1 Brand motives ............................................................................................. 60
3.2.2.2 Product-related motives .............................................................................. 65
3.2.2.3 Distributional capacities and resources ...................................................... 69
3 .2.2.4 Market share and market leadership goals ................................................. 71
3.2.3 Secondary M&A motives ........................................................................................ 73
3.3 Summary ............................................................................................................................... 74
X Table of Contents
4 Methodology of a Conjoint Study for Brand Acquisitions .............................. 77
4.1 Objectives and character of the study .................................................................................. 78
4.2 Survey design ....................................................................................................................... 79
4.2.1 Overview .................................................................................................................. 79
4.2.2 Conjoint analysis section ......................................................................................... 80
4.2.3 Importance ratings of attributes ............................................................................... 82
4.2.4 Respondents' background ....................................................................................... 82
4.3 Design ofthe choice-based conjoint experiment.. ............................................................... 82
4.3.1 Background on conjoint analysis ............................................................................ 82
4.3.2 Firm and brand attributes and brand set composition ............................................. 85
4.4 Imp1ementation ofthe study ................................................................................................ 89
4.4.1 Field phase .............................................................................................................. 89
4.4.2 Sampie description .................................................................................................. 90
4.5 Methodology and data analysis ............................................................................................ 90
4.5.1 Background of discrete choice analysis .................................................................. 90
4.5 .1.1 Analysis of discrete choice data ................................................................. 90
4.5.1.2 Basics oflogistic analysis ........................................................................... 91
4.5.2 Logit modeling in this study .................................................................................... 94
4.5.2.1 Basic speci:fication ofthe original balance model... ................................... 94
4.5.2.2 ldentifYing balancing and non-balancing attributes and deriving
optimal acquisition strategies ..................................................................... 96
4.5.2.3 lntegrating the balance model into the logit frameworl<. ........................... 97
4.5.2.4 Input variables for model estimation .......................................................... 98
4.5 .3 Excluding, segmenting, and weighting respondents ............................................. 102
4.5.4 Modeling the willingness-to-offer ......................................................................... 105
5 Results and Discussion of Conjoint Study ........................................................... 107
5.1 Presentation and evaluation oflogit models ...................................................................... 107
5 .1.1 Evaluation criteria for logit models ....................................................................... 108
5.1.2 Comparative presentation oflogit models ............................................................ 110
5 .1.3 Model interpretation: classification and relative importance of attributes ........... 116
5.1.4 Sensitivity check and model validation ................................................................ 123
5.1.4.1 Sensitivity checks ...................................................................................... 124
5.1.4.2 Model validation ....................................................................................... 130
5.2 Willingness-to-offer ........................................................................................................... 133
5.3 Findings, implications, and suggestions for adjustments in future applications .............. 136
6 Summary and Conclusions ........................................................................................ 141
Appendix ............................................................................................................................... 145
References ............................................................................................................................ 163
Bibliography ................................................................................................................... 163
References for analysis of motives (c hapter 3) .............................................................. 177
Index .............. -....................................................................................................................... 189
List ofTables XI
List of Tables
Table 1: Prominent M&A proposals in the global food industry, 1998-2000 ........................ 1
Table 2.1: Top 10 U.S. supermarket chains (1999) .................................................................. 30
Table 2.2: Development ofU.S. retailers' market shares (1993 vs. 2000) .............................. 30
Table 2.3: Dependence ofmajor manufacturers on certain retailers ....................................... 31
Table 2.4: Private labe! sales by food categories (1999) .......................................................... 34
Table 3.1: Sampie ofM&A deals involving U.S. and European food companies
(1998-2000) ............................................................................................................. 45
Table 3.2: Taxonomy and frequency ofidentified M&A motives .......................................... 49
Table 3.3: Frequencies ofidentified M&A motives by motive classes ................................... 54
Table 3.4: Frequency ofjoint occurrence ofmotive classes .................................................... 58
Table 3.5: Raukingof detailed M&A motives ......................................................................... 67
Table 4.1: Brand and firm attributes in choice-based conjoint study ...................................... 86
Table 4.2: Attribute Ievels ofbrands ........................................................................................ 88
Table 4.3: Profiles of companies .............................................................................................. 89
Table 4.4: Categorization of attributes by the balance model... ............................................... 96
Table 4.5: Optimal acquisition strategies ifboth the balancing and non-balancing terms
are signi:ficant .......................................................................................................... 97
Table 4.6: Converted values ofbrand attribute Ievels ............................................................ 100
Table 4.7: Converted values of:firm attribute Ievels .............................................................. 101
Table 4.8: Scoring scheme for segmenting respondents based on business and food
industry expertise .................................................................................................. 104
Table 5.1: Measures of:fit for logit model evaluation ............................................................ 110
Table 5.2: Specification and test statistics of estimated logit models .................................... 112
Table 5.3: Logit estimates by segment (model9) .................................................................. 117
Table 5.4: Significant variables by segment on the basis oflogit modeling ......................... 117
Table 5.5: Segment-speci:fic classi:fication ofattributes in terms oftheirbalance effect ...... ll8
Table 5.6: Segment-speci:fic profiles ofideal acquisition candidates .................................... 119
Table 5. 7: Ratings of attribute importance for making brand choices ................................... 121
Table 5.8: Importance rankings on the basis oflogit modeland respondents'
ratings, respectively ............................................................................................... 121
Table 5.9: Model fit statistics ofreduced models (removal ofvariables) ............................. 125
Table 5.10: Model fit statistics ofmodels basedondifferent conversions ofthe
product category variable ..................................................................................... 127
Table 5.11: Mean squared deviations (MSD) and t statistic Surrogates ofbootstrap
application ............................................................................................................ 129
Table 5.12: Hitratesand MAD values ofholdout samples ................................................... 131
Table 5.13: Regressionmodel ofwillingness-to-pay (nonzero weights) .............................. 134
Table 5.14: Importance ratings of determinants ofthe willingness-to-offer ......................... 135