
Hershey: No Kisses for Mondelez After Unsolicited Acquisition Bid
Shares of American chocolatier Hershey (HSY) - Get Report rocketed more than 15% higher Thursday, following a surprise announcement that the beloved company is the object of a $23 billion acquisition offer.
However, Hershey promptly rebuffed the proposal. Could there be any sweetness left for the company's investors?
The unsolicited offer came from Mondelez (MDLZ) - Get Report , whose brands include Oreo cookies and Ritz crackers. Hershey and Mondelez have reportedly been in informal talks for the past few months.
Mondelez itself has a storied history, having been spun off from Kraft/Nabisco.
Until this spring, activist investor Bill Ackman owned a giant $5.5 billion chunk of Mondelez. He reportedly intended the company to become a takeover object of its own, favoring a theoretical deal with Kraft Heinz.
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Hershey has been controlled by a charity, the Hershey Trust, for more than 110 years. The trust owns 8.4% of Hershey stock but 81% of its voting power.
Of course, the trust's blessing is the deciding factor for all proposed deals, and apparently, it has rejected this one. The trust nixed a takeover bid from Wrigley in 2002 that carried a value of $12.5 billion.
However, Hershey has been under pressure lately to boost its growth.
The company lowered its earnings guidance for the year due to weaker-than-expected demand for its products in North America. Year-over-year sales declined 5.6% in the first quarter.
At some point, something has to give.
Mondelez would be a good match for Hershey. The mega-company, which has a market capitalization of $69 billion, could provide needed exposure to international markets for Hershey, especially because Mondelez is the corporate parent of U.K.-based chocolate company Cadbury.
In order to sweeten the deal for the trust's board, Mondelez proposed that the two companies unite their chocolate and candy operations under the name "Hershey," with headquarters remaining in Hershey, Pa. That should have gone a long way to appease the board, as well as investors.
Mondelez may still attempt to make further bids for the smaller company.
If the acquisition does occur, the combined companies would create the world's largest confectioner. Mondelez is already the world's second-largest candy maker, ranking behind privately held Mars.
Because the majority of Mondelez's chocolates are sold in international markets, the deal would easily dodge antitrust concerns.
However, if Mondelez doesn't continue to pursue Hershey, there is another contender that may be waiting in the wings.
For a while, there was speculation that Nestle would attempt to take over Hershey. Nestle grants Hershey the license to market KitKat, one of the world's most popular candy bars, in the U.S.
Despite Hershey stock's recent run-up, investors should be wary, as they are betting that Mondelez will attempt to sweeten its takeover proposal. Of course, if Hershey does accept Mondelez's advances, that would make shares of Hershey a delicious treat for investors.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.










