Preview Newsletter
Hershey Media Report 7/4/16
-
Hershey bid must win state AG approval
Jul 4, 2016 | Wall Street Journal
By Annie Gasparro and Julie Jargon
Snack maker Mondelez International or any other potential bidder for Hershey is up against not only a board that indicated it doesn’t want to sell, but a secretive, controlling shareholder — and the state’s top law officer. -
Hershey Trust Holds Key
Jul 4, 2016 | Wall Street Journal
For Mondelez to succeed in its bid, it must persuade secretive shareholder Snack maker Mondelez International Inc. or any other potential bidder for Hershey Co. is up against not only a board that indicated it doesn't want to sell, but a secretive, controlling shareholder -- and the state's top law officer. -
A Hershey Sale Wouldn't Sour Regulators
Jul 1, 2016 | Bloomberg
By Gillian Tan and Rani Molla
Rejection hurts, and for a Mondelez-Hershey deal to come together, there's a lot that has to fall in line. But as for antitrust concerns, there's nothing to see here. -
Hershey’s trust must weigh the case for Mondelez deal
Jul 3, 2016 | Financial Times
By Lindsay Whipp
It started with a kiss — a Hershey’s Kiss. And from there the eponymous company grew into one of the world’s best-known manufacturers of chocolate. But founder Milton Hershey did not leave a legacy based only on confectionery. -
Rejected Mondelez-Hershey Deal Could Have Recast Global CPG Industry
Jun 30, 2016 | BrandChannel
By Dale Buss
Whether this is another urgent consolidation move within Big Food to cope with seismic industry changes or a way to take a huge new step into a bright future—or both—Mondelez has shaken up the food and beverage business today with reports of its offer to acquire Hershey. -
Mondelez's bid for Hershey – 5 things to know
Jul 4, 2016 | Just-Food
By Katy Askew
Hershey turned down a takeover approach from Mondelez International last week (30 June). At US$107 per share, the cash-and-shares offer valued the Reese's Pieces maker at approximately US$22.83bn. -
Oreo Manufacturer Tried Buying Chocolate Giant Hershey and Failed Miserably
Jul 2, 2016 | New York South East Post
Hershey said it had rejected a $US23 billion preliminary offer by Mondelez International that would seek to expand the latter's limited United States footprint and create the world's largest confectioner.
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Traditional Media
Full Text of Stories Below
-
Hershey bid must win state AG approval
Jul 4, 2016 | Wall Street Journal
By Annie Gasparro and Julie Jargon
Snack maker Mondelez International or any other potential bidder for Hershey is up against not only a board that indicated it doesn’t want to sell, but a secretive, controlling shareholder — and the state’s top law officer.
Mondelez, whose roughly $US23 billion ($30.7bn) bid was quickly rebuffed this week, is expected to continue fighting for a union. The company said it handled situations such as this “through private communications between companies”.
But, if the company continues its pursuit, it will have to contend with an unusual number of additional legal and political hurdles unique to deal-making with the famous chocolate maker. No deal would happen without the blessing of Hershey Trust Co, which controls 81 per cent of the company’s voting power and 8.4 per cent of its common stock.
Set up in 1905 by chocolate icon Milton Hershey, the trust’s mission is to make decisions based on the potential impact to the Milton Hershey School for underprivileged children, and the community of Hershey, Pennsylvania — which had protested against selling the company in the past.
Any sale would also need final approval of Pennsylvania’s attorney-general, who — under an unusual 2002 state law — has the power to countermand the trust, and has done so in the past.
Yet another challenge is the current political turmoil in the state, where Attorney-General Kathleen Kane is riding out the last few months of her first term, having been stripped of her law licence after being accused of leaking confidential information and lying about it. Ms Kane has said the charges against her are part of a conspiracy involving former state prosecutors she was investigating.
Other food makers, including Kellogg and Campbell Soup, have significant ownership by family and trusts, but Hershey is further subject to a state law that requires the top law-enforcement official to green light the sale of any company controlled by a charitable trust.
A spokesman for the Hershey Trust board said it wouldn’t comment on whether it supports selling the company.
-
Jul 4, 2016 | Wall Street Journal
For Mondelez to succeed in its bid, it must persuade secretive shareholder
Snack maker Mondelez International Inc. or any other potential bidder for Hershey Co. is up against not only a board that indicated it doesn't want to sell, but a secretive, controlling shareholder -- and the state's top law officer.
But, if the company continues its pursuit, it will have to contend with an unusual number of additional legal and political hurdles unique to deal making with the famous chocolate maker.
No deal would happen without the blessing of Hershey Trust Co., which controls 81% of the company's voting power and 8.4% of its common stock.
Set up in 1905 by chocolate icon Milton Hershey, the trust's mission is to make decisions based on the potential impact to the Milton Hershey School for underprivileged children, and the community of Hershey, Pa. -- which had protested selling the company in the past.
Any sale would also need final approval of Pennsylvania's attorney general, who -- under an unusual 2002 state law -- has the power to countermand the trust, and has done so in the past.
Yet another challenge is the current political turmoil in the state, where Attorney General Kathleen Kane is riding out the last few months of her first term, having been stripped of her law license after being accused of leaking confidential information and lying about it. Ms. Kane has said the charges against her are part of a conspiracy involving former state prosecutors she was investigating.
Other food makers, including Kellogg Co. and Campbell Soup Co., have significant ownership by family and trusts, but Hershey is further subject to a state law that requires the top law-enforcement official to green light the sale of any company controlled by a charitable trust.
The law is a "public policy tragedy," according to Robert Sitkoff, a Harvard Law School professor who has studied the trust. He said that diversifying the trust's portfolio would benefit the school and community but said he thinks any deal would face difficulties.
Others, including a former Pennsylvania attorney general, said a sale would hurt the community by resulting in job losses and other adverse economic and social impacts.
"Predicting and trying to rationalize the Trust's behavior has always been a tricky exercise," said Susquehanna analyst Pablo Zuanic.
A spokesman for the Hershey Trust board said it wouldn't comment on whether it supports selling the company, but three trust board members have seats on Hershey's board, which unanimously voted against the Mondelez offer of $107 a share on Thursday.
The trust itself is juggling other problems. A continuing investigation by the attorney general's office into alleged overpayment of directors and conflicts of interest has led to several directors resigning. The trust has said it is cooperating with the probe.
The fate of the 2002 deal talks is instructive. Hershey called off a sale to chewing-gum maker Wm. Wrigley Jr. Co., now a unit of the privately held Mars Inc., at the final hour, after facing resistance from the attorney general's office, which obtained an injunction granted by Pennsylvania Orphans' Court, saying a sale would hurt the community.
Less than two months after the scuttled deal, the Pennsylvania governor signed an amendment to a statute requiring the attorney general to approve the sale of any company controlled by a charitable trust.
A spokesperson for the attorney general's office said this week that it would need to review the details of any offers to buy Hershey before determining if it would be in the best interest of the school.
-
A Hershey Sale Wouldn't Sour Regulators
Jul 1, 2016 | Bloomberg
By Gillian Tan and Rani Molla
Rejection hurts, and for a Mondelez-Hershey deal to come together, there's a lot that has to fall in line. But as for antitrust concerns, there's nothing to see here.
Hershey said Thursday afternoon that it rejected a preliminary offer from Mondelez after reports surfaced earlier in the day saying the Oreo cookie maker had made a cash-and-stock-bid of $107 a share. While Hershey said its board “determined that it provided no basis for further discussion between Mondelez and the company,” market watchers believe the door might still be open to a deal -- the stock closed above the bid, at $113.49.
Should a transaction eventually get done, it would merge the owner of Cadbury with the maker of Hershey chocolate bars and Reese's peanut butter cups. These are big names in chocolate, but for folks wondering whether attempts at combining the two brands would run into antitrust hurdles, the answer is a firm no. A combined Mondelez-Hershey would command only an estimated 18 percent of the global confectionery market, according to Euromonitor International. It helps, too, that the majority of Mondelez's confectionery sales are focused outside North America, while the opposite applies to Hershey.
If the deal gets across the line, it'll be the eighth-largest M&A transaction this year and the largest consumer goods deal since Kraft and Heinz joined forces.
Trick or Treat
A tie-up between Mondelez and Hershey would be the biggest consumer-products deal this year.
But, there's wiggle room for it to move into seventh place. As we wrote Thursday, Mondelez's $107 a share offer -- at a bare premium of roughly 10 percent -- needs to be sweetened. This thought was echoed by Hershey's outright rejection on Thursday afternoon, but a better offer could prove tough if Hershey loses its license over KitKat in the U.S., which Nestle has the right to retain without any cost in a change-of-control, according to the Wall Street Journal.
That gives Nestle the biggest advantage among potential bidders, and it, too, wouldn't run into antitrust barriers. Rather, with combined share of 12 percent according to Euromonitor, it'd still rank behind Mars and Mondelez. That should give the Swiss giant something to chew on.
-
Hershey’s trust must weigh the case for Mondelez deal
Jul 3, 2016 | Financial Times
By Lindsay Whipp
It started with a kiss — a Hershey’s Kiss. And from there the eponymous company grew into one of the world’s best-known manufacturers of chocolate. But founder Milton Hershey did not leave a legacy based only on confectionery.
The entrepreneur-cum-philanthropist built an entire town — also called Hershey — for his factory employees and most importantly, a school for underprivileged children. The Hershey Trust Company is the trustee of the school and administers the funds dedicated to it.
More than a century on, Mondelez, rival snack maker and owner of Cadbury’s, is attempting to buy Hershey, bringing the trust and its operations into sharp focus.
With 81 per cent of the Hershey company’s voting rights, the trust will play a pivotal role in deciding whether to embrace Mondelez’s advances. The group has rebuffed one proposal but analysts are betting a higher offer is to come.
But the international attention garnered by Mondelez’s courtship has shone a spotlight on an organisation in upheaval, which some speculate may render the trust more willing to sell than in the past.
When and why was the Hershey Trust established?
Milton Hershey and his wife Catherine set up the trust in 1905, not long after the businessman built his first chocolate factory near Derry Church, Pennsylvania. The trust initially functioned as a bank for the community. But when the Hersheys established the Hershey Industrial School for orphaned boys in 1909, the trust was appointed control of its finances.
The deed outlined the Hershey’s wishes to ensure that the school, now called Milton Hershey School and expanded to include underprivileged girls, would have access to sustainable financial resources in perpetuity. In 1918 Hershey bequeathed the trust his chocolate group and all the auxiliary companies he had also started to handle the supply chain including his then Cuban investments, the town’s utilities and department store among others.
How is it organised, who is in charge and what are its objectives?
The Hershey Trust has $12bn in assets, double from a decade ago, putting it among the largest educational endowments in the US.
Through the ownership of Class B shares the trust controls about 80 per cent of the company’s voting rights. It also owns roughly 8 per cent of the group’s common shares and three of its directors sit on the Hershey company’s board.
In addition to the Milton Hershey school, the trust also serves as a trustee to the MS Hershey Foundation Trust, which supports the local park and museum, and the Hershey Cemetery Trust. It is served by 10 directors. The trust is supervised by the Pennsylvania attorney-general’s office, which has to sign off on any sale of its controlling stake.
Has Hershey received a takeover offer before?
Yes. In 2002, in an effort to diversify its portfolio, the trust put the Hershey company up for auction. It received two bids, one from Wrigley (since bought by Mars) and a joint offer from Nestlé and Cadbury Schweppes.
Wrigley’s $12.5bn bid, had — similar to Mondelez’s offer last week — been packaged with pledges to retain jobs. But that did not allay the local community’s fears.
The state attorney-general’s office blocked the deal on grounds that it would harm the community. A court backed this decision and the trust abandoned the plan. New rules were put in place to make it more difficult to sell the company.
Hershey and Cadbury executives had also reportedly flirted with acombination in 2007, but it was ultimately thwarted because of a tussle between the trust and the company’s board. Mondelez now owns Cadbury.
Jonathan Klick, a professor at the University of Pennsylvania Law School, writing in a paper about the deal estimated that rather than improving the welfare of the school’s students, who are the main beneficiaries of the trust, the court’s decision to stymie the deal had destroyed $2.7bn in shareholder value.
Why has the attorney-general’s office raised concerns over the trust?
The state attorney-general’s office is scrutinising the organisation over issues including alleged overpayment of directors, conflicts of interest and expenses. It is also seeking the resignation of three longstanding board members.
The trust said that policies regarding pay, travel and expenses were being “scrupulously followed”. The boards meet regularly to conduct proper oversight of the trust and the school, it said.
“We expect to appropriately resolve outstanding concerns the attorney-general’s office has,” it said. “The boards believe they continue to be in regulatory compliance and continue to have appropriate discussions with the attorney-general’s office.”
The attorney-general’s office did not respond to several requests for comment.
In April, the trust fired John Estey, an executive vice-president, after he entered into a plea agreement with the US attorney’s office in Harrisburg, Pennsylvania, to one count of wire fraud. Mr Estey’s wrongdoing was unrelated to the trust, it said.
The fresh concerns come a couple of years after a two-year investigation into the trust by the attorney-general’s office resulted in an agreementstipulating new rules on pay, expenses, property transactions and conflicts of interest. The office, which had reportedly been concerned over the trust’s purchase of a golf course, did not find that it had breached its fiduciary duty.
How are the overtures from Mondelez expected to play out?
Given the upheaval at the trust and the potential for three new board members on top of three others appointed earlier this year, some analysts say there is a chance that the trust could be more amenable to a sale of the confectioner.
Also while Hershey is a key employer in the area, it closed the original chocolate factory in 2013 it consolidated production and shifted some manufacturing to Mexico.
Others, however, are less certain. Prof Klick said: “It is politically difficult since the central Pennsylvania voters do not want to see Hershey controlled by outsiders.”
-
Rejected Mondelez-Hershey Deal Could Have Recast Global CPG Industry
Jun 30, 2016 | BrandChannel
By Dale Buss
Whether this is another urgent consolidation move within Big Food to cope with seismic industry changes or a way to take a huge new step into a bright future—or both—Mondelez has shaken up the food and beverage business today with reports of its offer to acquire Hershey.
According to the Wall Street Journal, the parent of Oreo, Cadbury and other major global confectionery and snack brands made a $23 billion takeover bid for Hershey—$107 a share—with the deal comprised half in stock and half in cash. The report goosed Hershey stock.
Hershey, however, issued a press release stating: “The Board of Directors of The Hershey Company unanimously rejected preliminary, non-binding indication of interest from Mondelez Company.” It went on to say Hershey “determined that it provided no basis for further discussion between Mondelēz and the Company.”
If the deal were to go through, according to the Wall Street Journal, Mondelez reportedly pledged to protect jobs in the event of a merger, locate its headquarters in Hershey, Pennsylvania, and actually rename the company Hershey.
Such a combination could accomplish a few things.
Mondelez’s market capitalization, at about $68 billion, is nearly three times that of Hershey, at $25 billion—but the companies and their brands are complementary, with relatively little overlap. Yes, Cadbury is candy and so is Hershey, but they fit well geographically. Mondelez is strong globally and in cookies, with Oreo, while Hershey, of course, is the epitome of chocolate, along with Mars, and is an iconic snack provider in the US.
Each traditional “junk food” company also has made major strides in shifting their portfolios and concerns to the better-for-you trend in the market.
Mondelez, for example, has innovated with new brands such as BelVita, a breakfast biscuit that includes complex carbs for long-burning energy release and, more recently, a “free-from” crackerbrand called Good Thins. Meanwhile, Hershey has taken a strong tack toward more nutritional fare by, for instance, acquiring the Brookside brand of fruit-and-nut bars and by readying to launch its own new brand of fruit-and-protein products, called SoFit.
Both Hershey and Mondelez also have devoted considerable resources, and much of their positioning and branding lately, to making their global supply chains more “sustainable” in terms of both environmental improvements and in the treatment of cocoa farmers and other suppliers. Among other things, such moves give each company more appealing stories to tell western millennial consumers who are greatly concerned about such corporate social responsibility considerations.
Interestingly, of course, Mondelez was created by a split of the old Kraft Foods conglomerate, in 2012, with its new sibling hanging on to the US grocery business and brands such as Oscar Mayer and Jell-O. But by 2013, activist investors such as Nelson Peltz were agitating for Mondelez to acquire the Frito-Lay snack business from PepsiCo.
Then, last year, Kraft was acquired by Heinz as cost pressures, slow growth in the CPG industry, shareholder agitation and uncertain global economies prompted their combination.
Peltz and fellow activist gadfly Bill Ackman each still hold sizable stakes in Mondelez.
-
Mondelez's bid for Hershey – 5 things to know
Jul 4, 2016 | Just-Food
By Katy Askew
Hershey turned down a takeover approach from Mondelez International last week (30 June). At US$107 per share, the cash-and-shares offer valued the Reese's Pieces maker at approximately US$22.83bn.
Hershey insisted the offer did not warrant further discussions with Mondelez. In a statement, Hershey said: "The company's board of directors, after receiving input from the company's management and its outside financial and legal advisors, carefully evaluated the indication of interest. Following this review, the board of directors of the company unanimously rejected the indication of interest and determined that it provided no basis for further discussion between Mondelez and the company."
Nevertheless, pundits and investors continue to be drawn to the prospect that Mondelez could push a tie-up through.
In a food sector where competitive forces are turning up the pressure for consolidation, Mondelez obviously thought a combination with Hershey would offer some sweet relief. Certainly, the strategic rationale is compelling.
Here is just-food's summary of what you need to know about the deal.
1. Would create a chocolate titan
The confectionery sector remains highly fragmented. According to Euromonitor International, global chocolate sales are worth US$100bn. The top six companies have 60% global share and the top three confectioners have only a 38% combined share.
The combination of Hershey and Mondelez would result in the formation of the world's largest chocolate group. Its stable of blockbuster brands would include the likes of Hershey, Cadbury, Reece's and Milka. It would account for 22.8% of global chocolate sales, ahead of Mars with a 15.2% global market share andNestle with a share of 11.5%.
2. Complementary geography
The geographic fit between the two groups is appealing. Currently around 75% of Mondelez's revenue is generated outside North America, with almost two-thirds of sales originating from Europe. With around 40% of sales exposed to the euro/sterling – and increasing regional volatility as highlighted by the UK referendum – ramping up sales in US dollars will provide some stability.
In contrast, approximately 90% of Hershey sales are generated in North America. The company has attempted to grow overseas, but the results have been somewhat mixed and Hershey has hit speed bumps in markets such as China.
Mondelez's global distribution network should prove a boon to Hershey brands, were a deal to go ahead. The company already has plenty of brand equity globally and Mondelez's global reach would capitalise on this.
In the US, any potential gains for Cadbury are likely to be more modest. Nevertheless, Susquehanna International Group analyst Pablo Zuanic suggests, there are gains to be had. "We think gradually the US Hershey platform would help Cadbury. In fact, given the heavy weight of "bagged" chocolate at Hershey (versus bar form) in the US, we think the business would benefit from some of the iconic "bar" brands in the Cadbury portfolio."
Another advantage to minimal geographical overlap is that the deal is unlikely to be hampered by competition hurdles.
3. The Hershey Trust is a barrier
The Hershey Trust has long been viewed as a barrier to any takeover of Hershey. Established by the chocolate makers founder, Milton Hershey, the Trust controls over 80% of Hershey voting rights. A deal cannot go ahead without the Trust's backing.
Mondelez appears to have already made a number of concessions in a bid to woo the Trust. According to the Wall Street Journal, Mondelez has made promises around jobs; suggested it would move its corporate head quarters to Hershey, Pennsylvania; and offered for the combined group to adopt the Hershey name. Hershey's strongly-worded rejection of the offer would suggest that this has not sweetened the deal.
As recently as 2007, the Hershey Trust reiterated its intention to retain a "controlling" interest in the company and the Trust has blocked previous takeover attempts that would compromise this. In 2002 it blocked an attempted takeover by Wrigley, in 2007 it prevented merger talks with Cadbury (now owned by Mondelez) and in 2010 the Trust prevented the chocolate group from bidding for Cadbury when the UK company was facing a hostile takeover bid from Kraft Foods – which then spun off into Mondelez International.
The terms of the proposed transaction, understood to be a 50-50 cash and stock deal, would see the Trust retain a stake in the larger business but lose its position as a controlling interest.
But – while it has the votes - the Trust is not as strong as it once was. The Trust, set up as a children's charity, is under investigation from the Pennsylvania Attorney General's office over how long its directors retain their positions for. The regulator has called for the resignation of three of its longest-serving directors. This uncertainty has prompted some pundits to suggest Mondelez could find a chink in the Trust's defensive armour.
Nevertheless, Morgan Stanley's Matthew Grainger writes: "In our view, these remain powerful hurdles to any potential transaction, and – although we would not view them as absolute obstacles – the board's decision today and recommitment to its strategic plan suggest a transaction is still relatively unlikely despite factors such as Mondelez's willingness to offer "non-monetary" concessions, Hershey's recent operational challenges, and recent disruptions at the Trust."
4. Mondelez has a history of hostile takeovers
Mondelez's management does have a history of successfully pushing through hostile mergers. In 2010 the company won through in a bitter takeover battle to wrestle control of Cadbury.
However, perhaps this takeover battle has acted as a warning for the Hershey Trust as much as anything else. In the UK, the then-Kraft had insisted it was its "sincere belief" it would keep Cadbury's production sites in the UK open. One week after completing the takeover, it closed the Cadbury factory in Somerdale at the cost of 1,000 jobs. After telling the UK parliament that production of inconic items like Cadbury Dairy Milk would remain in the UK, the company then proceeded to ship out manufacturing to Poland where costs are lower.
The Hershey Trust's fiduciary duty is to represent the interests of its charitable affiliates, such as the school it funds – not the financial gain of Hershey shareholders. It has strong ties to the local community and – with some reason given Mondelez's current focus on stripping costs from the business – it could view the prospect of Mondelez taking control with some cynicism.
5. Other potential suitors?
This raises the possibility that another bid – one that the Hershey Trust views as more amenable to its interests – could emerge.
"We think Hershey could be attractive to other suitors also," Zuanic notes. The analyst suggests Kellogg may see good brand overlap and be tempted by the desire to expand further into snacks, while Nestle may want to increase its exposure to US chocolate and take back control of its KitKat TM in the market.PepsiCo and Kraft Heinz are "more of a longshot", Zuanic adds.
-
Oreo Manufacturer Tried Buying Chocolate Giant Hershey and Failed Miserably
Jul 2, 2016 | New York South East Post
Hershey said it had rejected a $US23 billion preliminary offer by Mondelez International that would seek to expand the latter's limited United States footprint and create the world's largest confectioner.
Hershey issued a statement saying that the board of directors universally rejected the bidding proposal and are determined that there is no basis for further discussion between the two companies over the issue.
Hershey said that it had received a $107-a share preliminary cash and stock buyout offer, which also included other non-monetary considerations. One reason is because the Hershey Trust holds 80% voting control of the chocolate maker, and Morgan Stanley analysts note that the trust has opposed a sale of the company in the past. (NYSE:HSY) soared on Thursday following reports that snack giant Mondelez International (NASDAQ:MDLZ) had made a bid to acquire the company. It would have also led to the Mondelez's governance over Cadbury brand chocolates' production & Kit Kat's distribution in the USA market.
And Euromonitor analyst Jack Skelly - pointing out the deal would make Mondelēz the largest confectionery player in the world "by some margin" - added that both companies appeared to have similar ambitions to diversify into a range of snack products.
More than a decade ago, Wrigley, now a unit of Mars, tried to buy Hershey, but resistance from the trust scuttled the deal at the last minute. Mondelez is now the second-largest confectionery maker in the world in terms of revenue, while Hershey is the fifth-largest, and a combined group would have estimated revenues of $37bn (before any disposals).
Tigress Financial Partners LLC analyst Philip Van Deusen said he expected the offer price to increase, given the rise in Hershey's shares. The trust has also stood between Hershey and a deal with Cadbury, which was ultimately acquired by Kraft Foods.
Mondelez, which makes Oreo cookies and Cadbury chocolate bars, recently sent a letter to Hershey proposing the tie-up, according to people familiar with the matter. Shares of Mondelez rose as news filtered into Wall Street and it seems that investors believe that could be a fruitful deal for all concerned. Mondelez had a market value of $69 billion. It also makes and distributes Cadbury and Caramello sweets in the U.S.
"Yet rumours of an acquisition of Hershey have persisted for some time, suggesting the part-public, part trust-owned business has been seriously considering selling".
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Traditional Media
Full Text of Stories Below
Add recipients
Suggested