Merger Acquisition Newsroom

Consolidation Coinciding Mergers And Acquisitions

The ERS report, Structural Change in the Meat, Poultry, Dairy, and Grain Processing Industries (Ollinger et al., 2005), makes it clear that consolidation in the food industry over 1977-92 caused a major reduction in employment in seven of the eight food industries and a drop in the number of plants by about a third. Since the consolidation coincided with a wave of mergers and acquisitions, it appears plausible that food industry mergers caused job reductions and a decline in wages. Job reductions can come from closing plants and abolishing jobs or laying off workers at existing plants. First, we consider whether M&As caused plant shutdowns.

Now consider different perturbations of firm acquisition behavior. Firms can sell some plants and buy others or strictly buy, sell, or do neither. Tables 2 and 3 provide the disposition of three types of plants: acquired plants, plants owned by acquiring (buyer) firms, and plants owned by nonbuyer firms. The bottom row of each panel shows the total number of plants in that category, and the bottom row of the table shows the number of all plants owned by firms in each of the eight food industries. Since we are considering all plants owned by the firm, the number of plants owned exceeds the number of plants in the industry because firms may own plants outside their industry. For example, meatpacking firms owned 2,977 plants, but only 2,590 of them were meatpacking plants.

Firms kept about half the plants they acquired, closed about 25 percent, and sold about 25 percent. Although firms held and closed higher percentages of plants over 1982-87, the overall pattern remained similar (table 3). By contrast, those same buying firms kept 35 percent of the plants that they held in 1977, sold 30 percent, and closed the others; nonbuying firms kept about 40 percent of their plants, sold less than 10 percent, and closed the others (table 2). A similar pattern holds true for 1982-87 (table 3). Not surprisingly, the two industries with the greatest consolidation—meatpacking and fluid milk—had the highest rates of plant closures over 1977-82 (more than 60 percent). Overall, nonbuyer plants had plant closure rates greater than 50 percent. For 1982-87, only meatpacking, meat processing, and cheese had nonbuyer firm plant closure rates of 50 percent or more. These data suggest that acquired plants were bought and held for a longer period than the plants that either buyers or nonbuyers held at the beginning of the merger periods. However, these descriptive data do not provide conclusive evidence that M&As did not cause massive numbers of plant shutdowns and worker dislocations over 1977-92 because a number of intervening factors, such as labor productivity, also have roles in plant shutdown decisions. Thus, we built an empirical model explaining plant shutdown decisions in eight food industries. Before we present our model, we discuss the source of the data and the unit of analysis.