For a few hours, it looked like Big Chocolate was about to get even bigger: according to reports, Mondelez, the multi-billion dollar company behind Cadbury’s, Oreo and some of the world’s biggest brands, made a bid for Pennsylvania-based American chocolatier The Hershey Company.
On Thursday the Wall Street Journal reported that snack food titan Mondelez had submitted a bid for Hershey’s, a bid that would have created the world’s largest candy company and give the company several major brand names to add to a portfolio that already includes Chips Ahoy, Côte d’Or, Toblerone and many others. Hershey’s makes Kit Kat, Reese’s, Almond Joy, its namesake candy bars and many other chocolate confections.
By the afternoon, Hershey’s had said no deal: “[T]he board of directors of the Company unanimously rejected the indication of interest and determined that it provided no basis for further discussion between Mondelēz and the Company,” said the company in a public statement. The offer was for $107 per Hershey’s share; news of the bid sent the stock price to $117. It stayed high even after news of the rejection.
The deal would have merged the British and American distribution and manufacturing arms of the Cadbury chocolate company, which Mondelez purchased in 2009, when it was a part of Kraft, after management acquiesced to a hostile takeover bid. Hershey’s currently produces and distributes Cadbury chocolates in the United States.
The rumour sparked a rise in the market value of Hershey’s, which rose from $21bn to $24bn. Mondelez is currently worth about $69bn. Hershey’s shares didn’t entirely erase their gains suggesting that investors believe a deal could yet get done.
Any deal would depend on regulatory approval, as well as the blessing of the Hershey Trust, which controls 81% of shareholder voting power.
Hershey’s had an inauspicious 2015: shares fell by 15% and missed earnings estimates for the first two quarters of the year, in part because the company’s Chinese businesses underperformed, notably Golden Monkey Food Company in Shanghai, which Hershey bought in 2013.
The trust itself, which has opposed acquisitions in the past, is a troubled entity: in May, the attorney general of Pennsylvania demanded resignations from three members of its 10-person board over misuse of funds. The Hershey Trust controls some $12bn and administers the Hershey School, an institution for poor children, funds from which were allegedly used to purchase a golf course in 2013.
Mondelez divested itself of its grocery businesses in 2012 – when the firm was still called Kraft Foods – under shareholder pressure, and now focuses entirely on snack foods. The spun-off company, which kept the Kraft name, has since merged with Heinz, while Mondelez divested itself of a minority stake in coffee company Douwe Egbert in 2015 for $5bn. Now, it appears the company has returned to acquisitions.
Mondelez’s strategy of reshoring American jobs overseas in order to improve margins has been among the business decisions at issue in a presidential election season with an unusually strong focus on trade. Donald Trump vowed never to eat Oreos again (and exhorted competitor Chris Christie to do the same), despite profiting personally from the company’s decision.
The company has pledged to protect local jobs in Pennsylvania, should its purchase of Hershey’s be approved, a source told the Journal.
