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Hershey Media Report 7/13/16
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HSY Stock: For the Right Price, Hershey Co Should Sell
Jul 13, 2016 | Investor Place
By Will Ashworth
On June 30, the board of Mondelez International Inc(NASDAQ:MDLZ) sent a letter to Hershey Co’s (NYSE:HSY) board proposing it acquire the Pennsylvania chocolate maker for $23 billion, half of the $107 per share offer in cash, the other half in stock. Hershey’s board unanimously rejected Mondelez’s offer, even after the maker of Cadbury chocolate bars proposed renaming the merged company Hershey and moving its head office to Pennsylvania from Illinois. -
How Much Could Mondelez Pay for Hershey Co
Jul 13, 2016 | The Motley Fool
By Leo Sun
On June 30, snack foods giant Mondelez (NASDAQ:MDLZ) made a $23 billion bid for chocolate maker Hershey (NYSE:HSY). Hershey's board unanimously rejected the $107 per share offer, which represented a 10% premium to its closing price before the bid. That decision wasn't surprising, since Hershey has rejected numerous takeover offers in the past. But could Mondelez, which owns well-known staples like Oreo, Chips Ahoy, and Cadbury, eventually sweeten the offer to the point that Hershey agrees to a deal? -
Steel Out, Senser III?
Jul 13, 2016 | Hummelstown Sun
In the midst of other controversies, the joint Milton Hershey School Board of Managers/Hershey Trust Company Board of Directors has lost another member. Board member Joan Steel reportedly resigned from the board July 9. She was appointed to the board in 2013, and her resignation follows the departures of board members Stephanie Bell-Rose, Richard Zilmer and John Fry last year.
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HSY Stock: For the Right Price, Hershey Co Should Sell
Jul 13, 2016 | Investor Place
By Will Ashworth
On June 30, the board of Mondelez International Inc(NASDAQ:MDLZ) sent a letter to Hershey Co’s (NYSE:HSY) board proposing it acquire the Pennsylvania chocolate maker for $23 billion, half of the $107 per share offer in cash, the other half in stock.
Hershey’s board unanimously rejected Mondelez’s offer, even after the maker of Cadbury chocolate bars proposed renaming the merged company Hershey and moving its head office to Pennsylvania from Illinois.
Not enough of an incentive to sway its controlling shareholder, the Hershey Trust Company, which holds an economic interest of 34.1%along with 81.4% of the votes. The dual-class structure has once again come squarely home to roost.
The Hershey Trust Company has historically been opposed to any sale of Hersey to outside interests. As trustee for the Milton Hershey School Trust, The M.S. Hershey Foundation Trust and the Hershey Cemetery Trust, it has been entrusted with the financial oversight of the Milton Hershey School since 1909.
Milton Hershey funded the trust company, which now ensures almost 2,000 students pre-kindergarten through grade 12 from low-income homes are able to receive a quality education at no cost to the family. It’s a godsend for those who make the cut.
So, as you can imagine, the trust has an incredibly important obligation to current students, future students, the company itself and even the town of Hershey. To willy-nilly agree to Mondelez’s offer would be tantamount to negligence, although I’m not a lawyer, so I can’t completely understand where the line is drawn in such a situation.
Suffice it to say, we’ve been down this rabbit hole before.Hershey’s Previous Offers
In September 2002, Wrigley, now owned by Mars, offered to buy Hershey for $12.5 billion in cash and stock, but at the last hour, 10 of the trust company’s 17 board members voted to end the auction, which had been set up earlier in the year to find a buyer.
At the time, the trust reasoned that it needed a sale in order to diversify its interests beyond its controlling stake in Hershey. Pennsylvania’s Attorney General at the time applied legal and political pressure to the situation; ultimately, that tactic along with community protests ended the move to sell and here we sit today.
What will it take for the Hershey Trust Company to relent? A heck of a lot more than $107 per share.
In 2002, Hershey generated $403.6 million in net profit on $4.1 billion in revenue. That’s a multiple of 30 times earnings and three times sales. Based on 2015 numbers, Mondelez proposes paying 44.4 times earnings and three times sales. However, if you back out the $281 million in impairment charges in fiscal 2015, the multiple drops to 28.7 times earnings, less than what was offered by Wrigley 14 years earlier.
A lot has changed since then.
Surely, Hershey’s value in the chocolate space has gone up, not down, as time has passed. Not to mention, you have to pay a premium when someone controls the votes.Bottom Line on HSY Stock
No, for me it’s as simple as increasing the offer by 50% to $160 per share. At that price, the trustees are doing a great thing for the school because quite rightly, diversification on the scale of a pension fund is what’s needed to ensure the school’s future financial health. It thought it was appropriate a decade ago. Nothing on that score has changed.
And heck, if the trust wants, it can always keep the stock portion of the deal for sentimental reasons.
But alas, this is all conjecture until Mondelez or someone else steps up to the plate. Batter up?
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How Much Could Mondelez Pay for Hershey Co
Jul 13, 2016 | The Motley Fool
By Leo Sun
On June 30, snack foods giant Mondelez (NASDAQ:MDLZ) made a $23 billion bid for chocolate maker Hershey (NYSE:HSY). Hershey's board unanimously rejected the $107 per share offer, which represented a 10% premium to its closing price before the bid.
That decision wasn't surprising, since Hershey has rejected numerous takeover offers in the past. But could Mondelez, which owns well-known staples like Oreo, Chips Ahoy, and Cadbury, eventually sweeten the offer to the point that Hershey agrees to a deal?Why Mondelez needs Hershey
The packaged foods market is a slow growth one which is currently being crushed by currency headwinds. Last quarter, Mondelez revenue fell 17% annually and declined across all geographic regions. But on an organic basis, which excludes currency impacts and acquisitions, sales rose 2% and improved across all overseas markets.
Buying Hershey's big U.S. business (89% of its sales came from North America last quarter) would reduce the weight of Mondelez' overseas businesses and the impact of the strong dollar. It would also create the world's biggest candy maker with an 18% market share and bring Hershey's brands to more overseas markets. This plan notably defies activist investor Nelson Peltz's attempts to pivot Mondelez away from candy altogether.
However, the acquisition should satisfy Mondelez' other big activist investor, Bill Ackman, who wants the company to either sell itself or grow its revenue faster. Based on both companies' projected sales in 2016, buying Hershey would boost Mondelez revenue by 28% to $34 billion. Profitability would also improve, thanks to Hershey's higher operating margins.How much more could Mondelez pay?
At $107, Hershey is valued at 47 times trailing earnings. That's a whopping multiple for a company which grew its adjusted earnings by just 3.5% in 2015. It's also much higher than the average price-to-earnings of 29 times for the confectionery industry. Much of Hershey's 20% rally in 2016 was fueled by investors pivoting away from riskier stocks toward stable, mainly U.S.-based consumer staples plays with healthy dividends.
For reference, Danone's recent $10 billion purchase of WhiteWave Foods valued the company at 57 times earnings, but WhiteWave had posted 24% adjusted earnings growth last year. WhiteWave's earnings are expected to rise 18.5% this year, but Hershey's are only expected to grow 3%.
Returning with a higher bid could be risky for Mondelez, since Moody's recently warned that the deal could impact Mondelez' credit rating. Investors would also likely question the intelligence of paying over $23 billion for a company which generated just $513 million in net income last year.Learning from Wrigley's mistakes
The Hershey Trust, a $12 billion charity created by founder Milton Hershey a century ago, is the company's controlling shareholder with 81% of the vote. Back in 2002, the Trust put the company up for sale. Wrigley, now owned by Mars, nearly won the auction with a $12.5 billion bid which represented a 42% premium over Hershey's price before the process started. That offer valued the company at over 50 times earnings.
But in a surprising eleventh hour decision, the Trust voted to halt the auction in response to ongoing protests in the company's namesake city in Pennsylvania. Many protesters opposed the idea of selling the company which the entire city was founded upon, as well as Wrigley's proposal to rename the combined company "Wrigley Hershey".
Taking note of Wrigley's failed bid, Mondelez pledged to keep the company's headquarters in Hershey and to use Hershey as the combined entity's new name. Unfortunately, it seems like fixing those two issues didn't win over the board.What's next for Mondelez?
Mondelez probably won't raise its bid dramatically. I believe that the most that it couldreasonably raise the bid would be to around $115 per share, based on Hershey's multiple of 50 at that price.
That would value Hershey at nearly $25 billion -- which would still be a huge purchase for Mondelez, which finished last quarter with just $1.3 billion in cash and equivalents and $13.8 billion in long-term debt. This means that Mondelez must finance the deal with more debt or its own stock.
I believe that Mondelez will simply wait for now, since its initial bid has seemingly triggered a conflict within the Hershey Trust. Board member Joan Steel recently resigned without any explanation, hinting that some board members might be in favor of a deal. Investors shouldn't buy Hershey expecting a new offer -- since the upside potential will likely be limited -- but they should see if Mondelez can pull off one of the largest deals in packaged foods history.
Is Mondelez International the next stock to buy?
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Jul 13, 2016 | Hummelstown Sun
In the midst of other controversies, the joint Milton Hershey School Board of Managers/Hershey Trust Company Board of Directors has lost another member.
Board member Joan Steel reportedly resigned from the board July 9. She was appointed to the board in 2013, and her resignation follows the departures of board members Stephanie Bell-Rose, Richard Zilmer and John Fry last year.
According to Kent Jarrell, a spokesperson for the board, “I can confirm that Joan notified the board this weekend that she has resigned. No reason was given. We are looking for a replacement but the Boards are able to conduct business with 9 members.”
The departure comes as The Hershey Company has become the target of an takeover bid and as thePennsylvania Attorney General is pressuring the board to make changes, including the “Resignations on or before July 31, 2016 of all manager/directors who have served for more than ten (10) years.”
Also, The Sun has received an unconfirmed report that board member Joe Senser has been hospitalized. When asked about Senser, Jarrell said, “Joe remains on the Boards and I am unable to comment on personal matters concerning Board members.”
Senser has been on the board since 2001.
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