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Deal with Mondelez

Hershey’s Controlling Trust Is Besieged at a Pivotal Juncture
Jul 13, 2016 | Wall Street Journal
By Annie Gasparro and Andrea Fuller

The charitable trust that controls Hershey Co. could be asked to consider the sale of one of America’s most famous brands to snack giant Mondelez International Inc. at the same time the trustees are under scrutiny by Pennsylvania’s attorney general.
Mondelez's bid may find gaps in Hershey's armor
Jul 2, 2016 | Reuters
By Lauren Hirsch and Lisa Baertlein

An elaborate structure put in place to preserve Hershey Co's (HSY.N) ties to its local community has been roiled by scandal, creating an opening that Mondelez International Inc (MDLZ.O) seized on to launch a $23 billion for the chocolate giant.
Hershey rejects $23 billion Mondelez takeover offer
Jul 1, 2016 | Reuters
By Lauren Hirsch

Hershey Co (HSY.N) said on Thursday it had rejected a $23 billion takeover bid by Mondelez International Inc (MDLZ.O) that would seek to expand the latter's limited U.S. footprint and create the world's largest confectioner.
Mondelez Said to Have Approached Hershey With Takeover Offer
Jun 30, 2016 | Bloomberg
By Ed Hammond and Craig Giammona

Mondelez International Inc. made a takeover offer for Hershey Co., according to a person familiar with the matter, a deal that would create the world’s largest candy maker.
Fate of Megadeal for Hershey Rests With Scandal-Plagued Trust
Jun 30, 2016 | Bloomberg
By Craig Giammona

Holding the key to the sale of America’s second-biggest candy company is a scandal-scarred, $12 billion charity that all but owns Hershey, Pennsylvania. Hershey Trust Co. controls about 80 percent of Hershey Co., guides the 107-year-old Milton Hershey School, and oversees an amusement park and resort in the town of about 14,000.

OAG Settlement

Pennsylvania attorney general announces Hershey trust reform deal
Jul 29, 2016 | Reuters
By David DeKok, Lauren Hirsch and Lisa Baertlein

The Pennsylvania Attorney General's office on Friday unveiled the terms of a reform agreement with the charitable trust that controls Hershey Co (HSY.N) that includes a 10-year term limit for trustees and limits on their compensation to $110,000.
Hershey Trust to Reform Rules as Mondelez Increases Scrutiny
Jul 29, 2016 | Bloomberg
By Craig Giammona

Hershey Trust Co., the $12 billion charity that controls the Hershey chocolate company, reached a deal with the Pennsylvania attorney general to reform its management practices, ending an investigation into the scandal-scarred nonprofit group.
Five Hershey Trust Directors to Retire in Settlement With Pennsylvania Attorney General
Jul 29, 2016 | Wall Street Journal
By Maria Armental

Five directors at a charitable trust that controls Hershey Co. will leave the board as part of a settlement agreement with Pennsylvania’s top law-enforcement officer. The moves are the latest piece of overhaul for the trust’s board as the company has faced a buyout overture; four other members have resigned in the past several months.
Hershey Trust agrees to tougher governance rules
Jul 29, 2016 | Financial Times
By Lindsay Whipp

The Pennsylvania state attorney’s office has introduced stiffer rules governing pay and tenure at the $12bn Hershey Trust, ending its second investigation this decade into the organisation which controls the namesake candy company.

Bob Fernandez - Philadelphia Inquirer

$12B Hershey School framed a student for arson, suit alleges
Jan 19, 2017 | Philadelphia Inquirer
By Bob Fernandez

A former student at the $12.5 billion Milton Hershey School for impoverished children says in a federal lawsuit that school staff spied on her on Facebook and then framed her for arson.
Inquirer Editorial: Will yet another overhaul rid the Hershey Trust board of its crony culture?
Dec 22, 2016 | Philadelphia Inquirer
By Bob Fernandez

After years of scandal, the embattled Hershey Trust board has a chance to clean up its act and set a new course. But it remains to be seen if the board will ever reform itself or continue to paper over its problems.
Hershey chocolate company promotes Michele Buck to CEO
Dec 21, 2016 | Philadelphia Inquirer
By Bob Fernandez

Hershey Co. promoted Michele Buck to chief executive officer as the Pennsylvania chocolate giant faces shifts in consumer food consumption and a consolidating global confection industry. The change is effective March 1, the company said on Wednesday. Buck, who has been with Hershey since 2005 and is chief operating officer, replaces John Bilbrey who announced in October he would be retiring as CEO. Bilbrey will remain as non-executive chairman. The nation's largest chocolate marker is controlled by the scandal-plagued Milton Hershey School for impoverished children, also in Hershey, Pa.
Business Two Pa. mothers say $12B Hershey School booted students after suicide attempts
Dec 6, 2016 | Philadelphia Inquirer
By Bob Fernandez

Two Pennsylvania mothers say the $12.3-billion Milton Hershey School has refused to allow their children back onto campus after they became depressed and tried to take their lives, in the latest suicide-related incidents at the boarding school for impoverished students.
Readers: Startlingly rich Milton Hershey School should expand mission with $12B
Dec 2, 2016 | Philadelphia Inquirer
By Bob Fernandez

Tears came to the eyes of a retired Pennsylvania college president thinking about what could be done with Milton Hershey’s untapped billions of dollars. A New Hope woman’s “blood boiled.”
Hershey Co. CEO Bilbrey to resign; more turmoil at top of rich charity
Oct 14, 2016 | Philadelphia Inquirer
By Bob Fernandez

Hershey Co. CEO John Bilbrey is stepping down from the iconic Pennsylvania company, even as the firm's controlling shareholder, the $12.5 billion Milton Hershey School for impoverished children, faces its own board-level turmoil.
Mondelez drops talks on possible $22.3B takeover of Hershey
Aug 30, 2016 | Philadelphia Inquirer
By Bob Fernandez

Global snacks giant Mondelez International Inc. ended negotiations on a potential $22.3 billion takeover of Pennsylvania chocolate maker Hershey Co., saying there was "no actionable path forward."
Inquirer editorial: How a Hershey's kiss embodies the Kathleen Kane era
Aug 3, 2016 | Philadelphia Inquirer
By Bob Fernandez

The perpetually wayward Hershey Trust was an early focus of candidate Kathleen Kane's vows to be a tough top prosecutor. Her subsequent settlement with the chocolate-fueled charity as a newly minted attorney general - a capitulation that possessed all the toughness of a peanut butter cup - was one of the first signs that she would not live up to her promises.
Business Critics assail Kane's latest attempt to reform the Hershey School board
Jul 30, 2016 | Philadelphia Inquirer
By Bob Fernandez

Pennsylvania Attorney General Kathleen G. Kane announced Friday that five of the longest-serving and highest-paid board members on the $12.3-billion Hershey Trust for poor children would resign over the next 18 months after a probe into the board's compensation, governance, and travel expenses.
Attorney general, Hershey Trust reach tentative deal
Jul 23, 2016 | Philadelphia Inquirer
By Bob Fernandez

The troubled Hershey Trust for impoverished children and the Pennsylvania Attorney General's Office have reached a deal to settle the latest investigation into the giant charity that will include board member resignations, according to a source with direct knowledge of the agreement.
Board member at troubled Hershey Trust resigns
Jul 12, 2016 | Philadelphia Inquirer
By Bob Fernandez

In a sign of deepening turmoil, Hershey Trust board member Joan E. Steel resigned her position at the troubled $12.3 billion charity for impoverished children as the giant charity faces its latest investigation by the Pennsylvania Office of Attorney General.
Hershey rejects Mondelez buyout, but more offers may be coming
Jul 1, 2016 | Philadelphia Inquirer
By Bob Fernandez

The Hershey Co. candy giant Thursday rejected a takeover bid from Oreo-maker Mondelez International Inc. that would have kept the combined firm's chocolate operations in Hershey, Pa.
Did the Hershey School reject students for depression? Two suits say yes
Jul 1, 2016 | Philadelphia Inquirer
By Bob Fernandez

Lawyers for two former students, including a 14-year-old girl who committed suicide, sued the $12.3 billion Milton Hershey School on Thursday in federal court here, alleging that they were expelled for depression and having suicidal thoughts.
Business Hershey School's board, despite orders to be frugal, runs up big expense bills
Jun 20, 2016 | Philadelphia Inquirer
By Bob Fernandez

The directors of the Hershey School oversee an educational facility in central Pennsylvania for impoverished children, but you might not know it from their expense reports.
Embattled Hershey Trust removes top lawyer
Jun 3, 2016 | Philadelphia Inquirer
By Bob Fernandez

The $12 billion Hershey Trust for impoverished children has placed its chief compliance officer and top in-house lawyer, Marc A. Woolley, on administrative leave as the state Attorney General's Office seeks removal of three of the trust's board members.
Attorneys: 11 former students prepare to sue over digital camera hidden in Hershey School bathroom
May 28, 2016 | Philadelphia Inquirer
By Bob Fernandez

Two attorneys representing 11 former students at the Hershey School for poor children have filed documents in Philadelphia Common Pleas Court initiating lawsuits against the 2,000-student boarding institution for invasion of privacy and other misconduct.
Federal probe said to target Hershey School over disabled students
May 18, 2016 | Philadelphia Inquirer
By Bob Fernandez

An off-campus suicide in 2013 has triggered a federal civil rights probe into the $12 billion Hershey School - the second in four years by the Justice Department - for possibly violating the federal disabilities act, according to a half-dozen people who say they were contacted by the government.
How Hershey Trust's chairman found a summer job for his son
May 11, 2016 | Philadelphia Inquirer
By Bob Fernandez

It was a pretty fast summer-job search for the son of the board chairman of the $12 billion Hershey Trust. And his dad took care of it.
Hershey Trust spends $3.6 million investigating itself
May 5, 2016 | Philadelphia Inquirer
By Bob Fernandez

A splintered Hershey Trust board that controls one of the nation's richest charities has spent $3.6 million on legal fees to investigate claims of possible wrongdoing by its own members, according to an internal letter from the board's chief compliance officer, Marc A. Woolley, and now-fired executive John Estey.
Business AG wants to remove 3 leaders of Hershey Trust
May 3, 2016 | Philadelphia Inquirer
By Bob Fernandez

In a sign of the continuing chaos at the top of the $12 billion Hershey charity, the Pennsylvania Attorney General's Office is seeking the resignation of three long-standing board members at the Hershey School for poor children, according to a letter from the office obtained by the Inquirer.

Other Philadelphia Inquirer Coverage

Commentary: With Estey sting, more shame on Harrisburg - and the FBI
May 12, 2016 | Philadelphia Inquirer
By Bruce S. Marks

We have yet another scandal in Harrisburg. This one not only uncovered a corrupt lobbyist but exposes the FBI, which began a curious "pay to play" sting operation when Republicans controlled Pennsylvania state government in 2009. So far, though, only a Democratic power broker, who received a financially lucrative deal and apparently leniency to wear a wire, has been snared.
Estey wore wire after sting, sources say
May 8, 2016 | Philadelphia Inquirer
By Craig R. McCoy, Angela Couloumbis, Mark Fazlollah

After being snagged in a FBI sting in 2011, John H. Estey, the former top aide to Gov. Ed Rendell, agreed to secretly record his conversations with political figures, according to people familiar with Estey's role.
Few details available in Estey bombshell
May 1, 2016 | Philadelphia Inquirer
By Craig R. McCoy, Mark Fazlollah, and Angela Couloumbis

In the world of Pennsylvania politics, it would have been tough to find someone more deeply connected than John Estey. The former chief of staff to Gov. Ed Rendell and a onetime top lawyer, Estey spent the last two decades moving in and out of many circles, Democratic and Republican: Philadelphia City Hall. The state Capitol. The Delaware River Port Authority. A $12 billion charity.
Lawyer: Political player to admit wire fraud
Apr 30, 2016 | Philadelphia Inquirer
By Craig R. McCoy, Mark Fazlollah, and Angela Couloumbis,

John H. Estey, a former top aide to Gov. Ed Rendell and a prominent player in city and state politics, will plead guilty to wire fraud, his lawyer and federal prosecutors said Friday, the latest turn in a pay-to-play corruption probe that already snared Pennsylvania's former treasurer.

Milton Hershey School

Hershey, Pa., Is the Town That Chocolate Built
Aug 15, 2016 | Wall Street Journal
By Annie Gasparro

This town runs on chocolate. From the roller coasters at Hershey Park to the butterfly conservatory at Hershey Gardens, Hershey, Pa., was literally built on the generosity of its founder, the iconic chocolatier Milton S. Hershey.
Back-Stabbing and Threats of a ‘Suicide Parachute’ at Hershey
Jul 30, 2016 | New York Times
By David Segal

One toasty afternoon in mid-July, four 10-year-old boys gave a tour of their home at the Milton Hershey School, a boarding school for at-risk children and one of many gifts bequeathed by the chocolate magnate to the community that bears his name.

Full Text of Stories Below

Deal with Mondelez

Hershey’s Controlling Trust Is Besieged at a Pivotal Juncture

Jul 13, 2016 | Wall Street Journal

By Annie Gasparro and Andrea Fuller

The charitable trust that controls Hershey Co. could be asked to consider the sale of one of America’s most famous brands to snack giant Mondelez International Inc. at the same time the trustees are under scrutiny by Pennsylvania’s attorney general.
The attorney general’s office is threatening to take the trustees to court if they don’t make governance reforms at the trust by the end of the month, according to people familiar with the matter.
Such legal action might not directly affect the chocolate maker, which recently spurned a $23 billion takeover offer from Mondelez. But it would be a potential distraction for the trust at a critical time.
Mondelez, whose brands include Oreo cookies, hasn’t dropped its pursuit of Hershey, and could raise the offer if it sees an opening, said two of the people familiar with the matter.
Meanwhile, because of pressure from state regulators, the trust could lose three longstanding board members, after losing four members since December, including one last weekend.
A spokesman for the trust, one the nation’s richest charities, said the board is in talks with the attorney general’s office and hopes to reach a resolution.
The trust, which has a roughly 30% stake in the company and 81% of its voting power, was thrust into the spotlight by the Mondelez bid. Hershey’s corporate board, which includes three representatives of the trust, unanimously rejected the offer.
The trustees are under pressure to keep Hershey independent. The 122-year-old company provides 5,000 jobs and is a major source of pride in its hometown, where street lights along Chocolate Avenue are shaped like Hershey’s Kisses. But the trustees also have a legal obligation to maximize revenue for the trust’s beneficiary, a local school for underprivileged children.
The trustees are under pressure to keep Hershey independent. The 122-year-old company provides 5,000 jobs and is a major source of pride in its hometown, where street lights along Chocolate Avenue are shaped like Hershey’s Kisses. But the trustees also have a legal obligation to maximize revenue for the trust’s beneficiary, a local school for underprivileged children.
In 2002, a previous state attorney general pushed the trust to sell the company to diversify its assets. Amid the resulting political backlash, the attorney general did an about-face and won an injunction in state court that effectively prevented the trust from selling Hershey to suitor Wm. Wrigley Jr. Co.
“We think the outcome will be the same: no sale of Hershey,” said Pablo Zuanic, a food analyst at Susquehanna Financial Group. “True, the Mondelez approach is well-timed, given the slew of challenges faced by the Hershey Trust…but there are too many, mostly political, variables that would need to come together.”
The trust was established in 1909 by company founder Milton Hershey, who used his fortune to benefit an orphanage for boys. It later became the Milton Hershey School. Proceeds from the trust’s investments provide the revenue to run the school, which is now co-ed and has about 2,000 students.
The trust’s board, which typically has 10 members, oversees an endowment that nearly doubled, when adjusted for inflation, between 2000 and 2014 to $12.1 billion, according to federal tax records, and outstrips that of many elite colleges.
But infighting and scandals have plagued the trust’s board for years.
In 2010, regulators announced an investigation into the trust’s 2006 acquisition of a golf course adjacent to school property for $12 million—more than twice the appraised value. The school built a $5 million clubhouse, only to close the course a few years later to build student housing.
Dozens of local businessmen and doctors, including Hershey’s chief executive at the time, benefited from the deal because they owned shares in the golf course, according to an investigation by the Philadelphia Inquirer.
The attorney general’s office struck a deal with the board in 2013, which required trustees to adhere to stricter conflict-of-interest standards and limited base pay for board members to a $30,000 retainer each.
Few other large charities pay their board members, including Ivy League schools that manage multibillion-dollar endowments.
In the year prior to the agreement, four board members earned more than $250,000 from various Hershey boards, including one who received more than $1 million in compensation, according to the charity’s tax returns.
Earlier this year, the attorney general’s office sent the charity a letter accusing it of failing to adequately reduce compensation, among other concerns.
In addition, it called for the resignation of three board members because they have served for more than 10 years, including former chairman Robert Cavanaugh, who also sits on Hershey’s corporate board, and the trust’s current chairman. None of those three board members have resigned
Around the same time, regulators began digging into an internship then-chairman Mr. Cavanaugh helped acquire for his son with a company client after other disgruntled board members raised the matter, according to documents reviewed by The Wall Street Journal.
Mr. Cavanaugh didn’t respond to a request for comment.
Last year, four trustees, two of whom have since resigned, wrote a letter to the board’s head of governance, saying the board had “been required to devote substantial time, effort and trust resources on internal investigations, intrusion on management and infighting.” The divisiveness has “paralyzed us as a board,” they said.
In a more recent development, the state attorney general’s office has warned it will pursue court action if it can’t reach a settlement with the trust to remove the board members who have served longer than a decade, and comply with the other governance reforms, people familiar with the matter said.

Even if the trustees should be persuaded to approve a sale of the company, the attorney general could challenge the sale, thanks to a quirk of Pennsylvania law. Trustees would have to prove in the local Orphan’s Court that the sale was in the best interest of the charity.

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Mondelez's bid may find gaps in Hershey's armor

Jul 2, 2016 | Reuters

By Lauren Hirsch and Lisa Baertlein

An elaborate structure put in place to preserve Hershey Co's (HSY.N) ties to its local community has been roiled by scandal, creating an opening that Mondelez International Inc (MDLZ.O) seized on to launch a $23 billion for the chocolate giant.
While Hershey's board of directors unanimously rejected Mondelez's offer on Thursday, its once impenetrable defenses are now looking weaker due to an investigation into the charitable trust that controls it, as well as controversy facing the Pennsylvania Attorney General (AG), who also has a say in any change in Hershey Co's ownership.
The Hershey Trust, set up by the company's eponymous founder a century ago, holds 81 percent of the company’s voting stock and without its approval, a sale is impossible.
The Trust has blocked Hershey deals in the past, including a 2002 takeover bid for the company, which makes Hershey's Kisses and Reese's Peanut Butter Cups.
But the Trust set up over 100 years ago to help underprivileged children is now being investigated by the Pennsylvania AG's office for how much it spends and how long its directors have served for.
The AG's office has called for the resignation of three of its longest tenured employees. Separately, this year, the Trust fired its executive vice president, after he pled guilty to wire fraud associated with campaign contributions.
The Trust is one of Pennsylvania's wealthiest charities. Its shares in the chocolate giant have created a $12 billion endowment that helps to fund a school as well as an amusement park and resort in Hershey, a small town about 100 miles (160 km) west of Philadelphia.
Another hurdle to the Mondelez bid is the Pennsylvania AG's office, which has the right to intervene in a Hershey deal if it deems it "unnecessary for the future economic viability of the company."
The current AG in Pennsylvania, Kathleen Kane, is set to go on trial next month for allegedly leaking lewd and bigoted emails between prosecutors and judges to a reporter. The scandal has been dubbed 'Porngate' by local media.
Joel Glenn Brenner, author of the 2000 book 'The Emperors of Chocolate: Inside the Secret World of Hershey and Mars', said that the troubles facing the Trust and Kane could make them less resolute in opposing a deal.
"This time, what makes it different is these investigations, the chaos at the attorney general's office, and the fact that there has been a turnover at the trust," she said.
The fiduciary duty of the Trust, laid out in a 1909 deed, is to support the Milton Hershey School, an establishment created for children from low-income families, not Hershey’s shareholders.
In 2002, when Wm. Wrigley Jr. wanted to buy Hershey for $12.5 billion, the Trust called off the sale at the last minute. It also thwarted a deal in 2007, when confectionary company Cadbury entered into conversations about a tie-up and, in 2010, the Trust prevented Hershey from bidding for Cadbury.
The Pennsylvania AG's office also helped pull the plug on the Wrigley deal in 2002.
The Trust declined to comment on the offer for Mondelez, which would create the world's largest confectioner, but said it hoped to address the AG’s concerns.
"We expect to appropriately resolve outstanding concerns the Attorney General's office has concerning the interpretation of the 1909 deed of Milton S. Hershey, where he outlined his wishes to provide a funding mechanism to provide the Milton Hershey School with sustainable financial resources in perpetuity," said Kent Jarrell, a spokesman for the Hershey Trust board.
A spokeswoman for Kane was not immediately available to comment.

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Hershey rejects $23 billion Mondelez takeover offer

Jul 1, 2016 | Reuters

By Lauren Hirsch

Hershey Co (HSY.N) said on Thursday it had rejected a $23 billion takeover bid by Mondelez International Inc (MDLZ.O) that would seek to expand the latter's limited U.S. footprint and create the world's largest confectioner.
The snub underscores the challenges Mondelez Chief Executive Irene Rosenfeld faces in wooing Hershey's controlling shareholder, the Hershey Trust, a $12 billion charity created by the eponymous company's founder a century ago.
The maker of Hershey's Kisses and Reese's Peanut Butter Cups saw its shares trade above Mondelez's bid of $107 per share in cash and stock, indicating investors expected a new offer.
A merger of two of the world's top five candy makers would add Hershey's strong U.S. business to Mondelez's global footprint.
Earlier, a source said that Mondelez had sought to provide assurances to Hershey that it would keep its name and preserve jobs. Mondelez sees little antitrust risk given the limited geographic overlap of the two companies' businesses, the source added.
"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," Hershey said in a statement.
Hershey shares ended trading on Thursday up 16.8 percent at $113.49, while Mondelez rose 5.9 percent to $45.51.
Mondelez, the maker of Oreos cookies, is the second-largest confectionary company globally, while Hershey ranks number five. Their merger would put them in the top place at 18 percent of the market, according to market research firm Euromonitor International Ltd. The combined company would leapfrog Mars Inc, which has 13.3 percent of the global market.
A fusion of the two would give Mondelez control over the production and distribution of Cadbury brand chocolates in the United States, which Hershey currently holds the license to produce, paying royalties to Mondelez.
It would also give Mondelez the U.S. production and distribution rights for Kit Kat, one of the most popular chocolate brands in the world, which industry sources said would be a significant boost to Mondelez.
Nestle SA (NESN.S) manufactures Kit Kat worldwide, but Hershey has the rights in the United States, paying Nestle royalties from sales. Mondelez's bid could put pressure on Nestle to consider its own bid for Hershey.
Upon change of control at Hershey, the license would revert back to Nestle for free, depriving value for a potential acquirer.
HERSHEY TRUST TROUBLE
The bid pits Deerfield, Illinois-based Mondelez against the Hershey Trust, one of Pennsylvania's wealthiest charities. The trust has about 81 percent of Hershey's voting rights and in 2002 prevented the Hershey, Pennsylvania-based company from being acquired by Wm. Wrigley Jr. Co for $12 billion.
Pennsylvania's attorney general also sued to block the Wrigley deal, arguing it would hurt the local community.
Created by Hershey founder Milton Hershey to provide for the Milton Hershey School, a private school for children from low-income families, the trust has been the subject of an investigation recently by Pennsylvania's attorney general over conflicts of interest and mismanagement.
The trust's chief compliance officer was put on leave last month after a leaked memo showed the board had spent nearly $4 million investigating conflicts of interest and insider-trading accusations against board members. A top trust official was also sacked in May and pled guilty to wire fraud.
STARTING POINT
Tigress Financial Partners LLC analyst Philip Van Deusen said he expected the offer price to increase, given the rise in Hershey's shares.
"I think ($107) is a good starting place," he said.
Analysts have been skeptical of takeover bids for Hershey in the past. "The Trust ... is outwardly very committed to keeping the company independent," Bernstein analyst Alexia Howard said in June last year. "So it's pretty much impossible for an activist to get involved or for the company to be bought."
Last year, William Ackman revealed his activist hedge fund Pershing Square had built a stake worth about $5.5 billion in Mondelez, in what was seen as an attempt to push the company to boost earnings or sell itself.
Ackman joined fellow activist Nelson Peltz as an investor in Mondelez.

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Mondelez Said to Have Approached Hershey With Takeover Offer

Jun 30, 2016 | Bloomberg

By Ed Hammond and Craig Giammona

Mondelez International Inc. made a takeover offer for Hershey Co., according to a person familiar with the matter, a deal that would create the world’s largest candy maker.
The bid valued Hershey at $107 a share, half in cash and half in stock, the person said, asking not to be identified as the information is private. The two companies have been talking in recent months, but no deal has been reached, the person said.
Mondelez sent a letter to Hershey expressing interest this month, the Wall Street Journal reported earlier. Hershey, based in the Pennsylvania town of the same name, has a market value of about $25 billion.
Hershey Co. shares rose as much as 21 percent Wednesday to $117.79, the biggest intraday gain in almost 14 years.
A spokesman for Deerfield, Illinois-based Mondelez declined to comment. Representatives for Hershey didn’t immediately respond to a request for comment.
Acquiring Hershey would balance the portfolio of Oreo maker Mondelez, which is mostly focused overseas. Hershey generated almost 90 percent of its revenue in North America last year, with the majority of that coming from selling chocolate in the U.S. The combination also would vault Mondelez past Mars Inc. as the world’s biggest confectioner, according to Euromonitor International.
“From a geographic perspective, the move makes sense,” said Jack Skelly, an analyst at Euromonitor. “Mondelez has achieved its position as the second-largest confectionery manufacturer in the world without any sizable presence in the U.S.”
Hershey Name
Mondelez pledged to maintain jobs and move the combined company’s headquarters to Hershey, according to the Journal report. The new business also would take the Hershey name, the newspaper said.
Mondelez, which split from Kraft Foods in 2012, was set up to focus on faster-growing emerging markets. The global slowdown has dealt the company a blow in recent years and made the U.S. market look more attractive.
But Hershey faces its own challenges. It’s suffering from a cutback in sugar consumption by Americans, prompting it to push deeper into foods like beef jerky. The company’s troubles have made it more of a takeover target, analysts say. The question is whether the Hershey family trust would go along with a buyout. The Hershey Trust Co., which controls about 80 percent of voting rights, has long been seen as an impediment to sealing a deal.
“They control the company,” said Bloomberg Intelligence analyst Ken Shea. “If it’s a friendly deal, presumably they’ll have the trust on board.”

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Fate of Megadeal for Hershey Rests With Scandal-Plagued Trust

Jun 30, 2016 | Bloomberg

By Craig Giammona

Holding the key to the sale of America’s second-biggest candy company is a scandal-scarred, $12 billion charity that all but owns Hershey, Pennsylvania.
Hershey Trust Co. controls about 80 percent of Hershey Co., guides the 107-year-old Milton Hershey School, and oversees an amusement park and resort in the town of about 14,000.
Its 10 trustees have been averse to deals, scuttling efforts to separate them from their candy-coated source of cash. The Hershey Co. board rejected Mondelez International Inc.’s $23 billion bid Thursday to put together the biggest candy maker in the world by buying the ailing chocolate company.
What surprised some observers was that Hershey offered no rationale for rebuffing Mondelez, saying only that it saw nothing in the offering that warranted further discussion.
It could be a negotiating ploy, said Chris Growe of Stifel Financial Corp.
“We believe Mondelez will raise its offer to entice the Hershey Trust to engage in negotiations and eventually sell the business,” Growe said Thursday. If that fails, perhaps Hershey will get a bid from Nestle SA, he said.
Nestle and Wm. Wrigley Jr. Co. both made offers to buy the company in 2002 before being rebuffed by Hershey Trust. The trust has also stood between Hershey and a deal with Cadbury, which was ultimately acquired by Kraft Foods. Hershey now owns the Cadbury license in the U.S., while Mondelez sells the candy in the rest of the world. Unifying the brand is considered part of the rationale for the takeover offer that was rejected Thursday. Mondelez declined to comment on the deal. So did Kent Jarrell, a Hershey Trust spokesman.
Milton Hershey
Four years after establishing the Hershey Trust, chocolate baron Milton Hershey opened the boarding school for low-income students and designated the trust as its administrator. The trust also runs the Hershey Entertainment & Resorts Company, which operates a minor-league hockey team, entertainment venues and Hersheypark. Along with the factory and corporate offices of the chocolate company, they dominate the landscape in Hershey, about 100 miles west of Philadelphia.
U.S. consumers are cutting down on sugar and the candy company is suffering. Its name has been bandied about as a potential takeover target in recent months as the food industry consolidates. But any rumors come tinged with a touch of skepticism, mostly because of the Hershey Trust. Without its approval, a sale has no chance.
Attorney General
Then there’s the little detail that the Pennsylvania attorney general has the right to review a deal to acquire the candy maker. That’s because the trust is legally obligated to continue financing the Milton Hershey School, and since the trust is supported by profits from the chocolate company, the state can try to stop a sale if it determines that school funding is threatened.
The trust has been the subject of allegations in recent years of lavish spending by board members. The state attorney general recently sought the resignation of three board members and asked the trust to reduce board compensation, the Philadelphia Inquirer reported.
Wire Fraud
Trust executive John Estey, a one-time aide to Pennsylvania Governor Edward Rendell, was fired in April after pleading guilty to wire fraud associated with campaign contributions.
With all the controversy at the trust, Mondelez emerged with a bid to take over Hershey at $107 a share.
“I think Mondelez appreciates that the trust’s board has been weakened, and given how protective of Hershey’s interests the trust has been, now is the time, if ever, to swoop in,” said Asit Sharma, an analyst at the Motley Fool. “We can expect an adjusted offer in the near future, which will be more difficult for the board to reject unanimously as shareholders clearly support the idea of a merger.”

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OAG Settlement

Pennsylvania attorney general announces Hershey trust reform deal

Jul 29, 2016 | Reuters

By David DeKok, Lauren Hirsch and Lisa Baertlein

The Pennsylvania Attorney General's office on Friday unveiled the terms of a reform agreement with the charitable trust that controls Hershey Co (HSY.N) that includes a 10-year term limit for trustees and limits on their compensation to $110,000.
The trust has been in the spotlight since Hershey rejected a $23 billion cash-and-stock offer for the candy maker by Mondelez International Inc (MDLZ.O), the maker of Oreo cookies and Cadbury chocolate, last month.
The agreement, which comes after an investigation of several months by the Attorney General's office over the trust's governance, compensation and expenses, could offer the clarity needed for Mondelez to make a new bid to acquire Hershey.
The Attorney General's office had accused the trust of breaking the terms of a 2013 reform agreement. Created by Hershey Co founder Milton Hershey and his wife Catherine over a century ago, the trust runs a school for underprivileged children in Hershey, Pennsylvania.
"All the efforts that led to this agreement were made to ensure that the vision of Milton and Catherine Hershey remains intact," Attorney General Kathleen Kane said in a statement.
Kane also said that making a recommendation on the sale of Hershey would be outside the authority of her office, and that it is up to the company's board to decide on such a matter.
The new reform agreement with the Attorney General's office, as first reported by Reuters last week, requires three trustees, Joseph Senser, Robert Cavanaugh and James Nevels, to step down by the end of the year.
Senser and Cavanaugh have been trustees since 2001, while Nevels has been a trustee since 2007.
Hershey Trust Chairwoman Velma Redmond, who joined the trust in 2003, will step down by the end of 2017, along with James Mead, a trustee since 2007.
Cavanaugh, Senser and Mead are also on the board of Hershey Co.
The Hershey Trust may continue to elect trust board members to serve on the board of Hershey Co, though no more than three individuals are allowed to be on both boards at the same time. Neither the president of Hershey school nor the CEO of Hershey Trust is allowed to be on the board of Hershey Co.
The trust board, which now has nine members, should use their "best effort" to have thirteen members, according to the agreement. The trust should seek to hire directors with training and experience that includes childhood education and financial management, the agreement states.
The Pennsylvania Attorney General's office will be given a 30-day window to review new board members and must be notified of any relationship to incumbent board members.
Trustee compensation will be capped at $110,000. Trust board members who serve on other Hershey company boards, Hershey Co and Hershey Entertainment and Resorts, will have their salary capped at $80,000. Additional compensation for board chairs is capped at $30,000, and additional compensation for committee chairs is capped at $10,000.
The agreement was filed on Friday in the Orphan's Court Division of the Dauphin County Court.
The new deal with the Attorney General's office follows a period of internal dissent and turmoil at the trust. Trustee Joan Steel resigned earlier this month, following the departures of Richard Zilmer, John Fry and Stephanie Bell-Rose over the past year.
The Attorney General's office, the trust's sole overseer, had threatened legal action to remove trustees unless a settlement over its governance was reached by the end of July.

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Hershey Trust to Reform Rules as Mondelez Increases Scrutiny

Jul 29, 2016 | Bloomberg

By Craig Giammona

Hershey Trust Co., the $12 billion charity that controls the Hershey chocolate company, reached a deal with the Pennsylvania attorney general to reform its management practices, ending an investigation into the scandal-scarred nonprofit group.
The trust, which has faced allegations of lavish spending by board members in recent years, agreed to various governance changes, including term limits and a cap on compensation for board members. The deal also calls for three members of the trust’s board to resign by the end of the year, according to a statement Friday from Kathleen Kane, the attorney general of Pennsylvania.
The Hershey Trust, established in the early 1900s by Milton Hershey, has been back in the spotlight after Mondelez International Inc. made a $23 billion bid to buy the chocolate company last month. The trust controls the candy maker through voting shares and has been seen as an obstacle to takeover attempts. That’s made the turmoil at the nonprofit -- and the push to change its management practices -- of strong interest to Hershey investors.
“All of our efforts that led to this agreement were made to ensure that the vision of Milton and Catherine Hershey remains intact,” Kane said in the statement.
Retirements Planned
In addition to the three directors who must leave the board by the end of the year, two more must retire by the end of 2017, according to the statement. The agreement limits terms on the roughly 10-member board to a decade and calls on the trust to find directors whose “education, training and experience” reflect the full range of the organization’s duties.
The trust previously reached an agreement with the Pennsylvania Attorney General’s office in 2013, ending a probe into the controversial purchase of a golf course by the charity. The current investigation centered on the trust’s compliance with the previous agreement, according to Kane. The trust shares a board of directors with the Milton Hershey School.
“We are satisfied with the outcome,” Velma Redmond, chairman of the trust’s board, said in a separate statement. The organization will “now move forward, working cohesively and collaboratively, as we direct, support and fulfill the ongoing mission of the Milton Hershey School.”
‘Period of Transition’
Redmond noted that the trust board was “already in a period of transition,” with three members leaving for personal reasons in the past year. Joan Steel, a Hershey Trust board member since 2012, resigned earlier this month.
The trust announced that two new directors, James W. Brown and M. Diane Koken, had joined the board.
Adding to the upheaval, trust executive John Estey, a one-time aide to former Pennsylvania Governor Edward Rendell, was fired in April after pleading guilty to wire fraud associated with campaign contributions. The wrongdoing wasn’t related to his work at the charity, a spokesman for the trust said.
Amid the ongoing controversy, Mondelez emerged with an offer for Hershey Co. that would have created the world’s largest candy maker. Hershey, struggling with an ill-fated expansion in China and sluggish U.S. sales, has long been seen as a takeover target -- with the trust serving as the main obstacle to a buyout.
Future Bid?
The Mondelez bid was rejected by the chocolate company, though analysts have speculated the suitor could raise its bid. Mondelez and Hershey haven’t commented on the matter beyond confirming the initial offer. The trust would ultimately have to approve a deal, and the Pennsylvania attorney general has the right to review it. It’s unclear if the shake-up at the trust changes its outlook on a potential acquisition.
The trust runs Hershey Entertainment & Resorts Co. and operates a school for low-income students. At the event announcing the agreement, Kane said her office plans to continue monitoring the trust.
“We hope in three years they say, ‘We’re happy to report there’s nothing to report,’” she said.

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Five Hershey Trust Directors to Retire in Settlement With Pennsylvania Attorney General

Jul 29, 2016 | Wall Street Journal

By Maria Armental

Five directors at a charitable trust that controls Hershey Co. will leave the board as part of a settlement agreement with Pennsylvania’s top law-enforcement officer.
The moves are the latest piece of overhaul for the trust’s board as the company has faced a buyout overture; four other members have resigned in the past several months.
Under the terms of the agreement, which also includes term and compensation limits, Robert F. Cavanaugh, Vice Chairman Joseph M. Senser and James E. Nevels are to retire by the end of the year; and Chairwoman Velma A. Redmond and James M. Mead, the trust’s nonexecutive director, are to retire by the end of next year.
The Wall Street Journal had reported preliminary terms of the settlement last week citing people familiar with the matter.
Messrs. Cavanaugh, Mead and Nevels also sit on Hershey’s corporate board.
The Hershey Trust Co., which oversees billions of dollars for a local, nonprofit school, controls 81% of the company’s voting power and is under pressure from the community to keep Hershey independent.
In June, Mondelez International Inc. bid $107 a share for Hershey, though that bid was rebuffed by the candy maker. The trust has opposed efforts to sell the company in the past, including rejecting an offer by Wm. Wrigley Jr. Co. in 2002.
The trust’s board has a legal obligation to act in the best interest of the Milton Hershey School for underprivileged children. Proceeds from the trust’s investments provide the revenue to run the school, which has about 2,000 students, many of whom get jobs and internships within the Hershey empire, including the chocolate factory in town, the Hershey resort and the local theme park.
The Pennsylvania Attorney General’s Office, which has oversight powers over the trust, was looking into the trust’s compliance with a 2013 agreement, which put in place stricter conflict-of-interest standards. The latest agreement, which takes effect Aug. 1, goes further, by imposing additional limits on board members and family members along with prohibiting reimbursement of luxury accommodations and “frivolous expenses,” and puts in place term and age limits.
In addition, it requires the trust to give the attorney general at least 30 days’ advance notice before electing a new manager or director and disclose personal relationships and setting caps on compensation. Under the latest agreement, the board is also to expand to 13 members, from the current nine.
Milton and Catherine Hershey set up the trust in 1909, using their fortune to benefit an orphanage for boys. Today, the Milton Hershey School is a private, coed prekindergarten through 12th grade school. Admission is based on income.

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Hershey Trust agrees to tougher governance rules

Jul 29, 2016 | Financial Times

By Lindsay Whipp

The Pennsylvania state attorney’s office has introduced stiffer rules governing pay and tenure at the $12bn Hershey Trust, ending its second investigation this decade into the organisation which controls the namesake candy company.
The move will renew debate over the Trust’s controlling stake in the Hershey Company, which rebuffed a $23bn bid by rival Mondelez International late last month. The Trust controls 80 per cent of the votes at the maker of Hershey bars and Reese’s Peanut Butter Cups.
Some analysts have argued that the upheaval at the Trust, combined with flagging sales at Hershey, provided an opening for bidders. Kathleen Kane, the attorney-general, said on Friday that the agreement “should not impact or influence the Hershey Company, which remains strong and economically viable”.
The agreement with the attorney-general’s office limits Trust board members to a maximum 10-year tenure, which will force out three members by the end of this year. As three had already left this year for “personal” reasons, the make-up of the Trust’s board will be significantly different by January.
The Pennsylvania attorney’s office would still have to ratify any takeover of Hershey, even if a new board was more amenable to a sale because, for example, it wanted to diversify its funding from its current dependence on $150m in annual dividends from the candy company.
“We still maintain the right to review any potential acquisition under the law and will closely review how it would impact the viability of the company and the community,” said a spokesman for the state attorney’s office on Friday.
In an open letter, the Trust board said it was satisfied with the outcome and was still confident it could attract qualified candidates although the agreement meant total compensation would be reduced. The settlement capped directors’ compensation at $110,000, with a further $30,000 for the board chair.
The state attorney’s office opened the most recent investigation over alleged overpayment of directors, conflicts of interest and expenses, and the length of board members’ tenure. Critics have also raised concerns over board members’ qualifications to sit on a board of a school for at-risk children.
The Trust was established more than a century ago for the purpose of founding and endowing in perpetuity the Milton Hershey School for disadvantaged children.

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Bob Fernandez - Philadelphia Inquirer

$12B Hershey School framed a student for arson, suit alleges

Jan 19, 2017 | Philadelphia Inquirer

By Bob Fernandez

A former student at the $12.5 billion Milton Hershey School for impoverished children says in a federal lawsuit that school staff spied on her on Facebook and then framed her for arson.
The 2,000-student boarding school pinned blame on 10th grader Jaiden Buchan for a fire that caused $700,000 in damage to a school-owned home to divert attention from staff and the son of house parents who had a criminal record, according to the suit filed in Harrisburg federal court in late December.
The Dauphin County District Attorney's Office prosecuted Buchan, now 20, in 2013, but a juvenile family court judge dismissed the case, the suit says.
The Hershey School "manufactured" a case against Buchan to "find any scapegoat at all, lest the 'arson' be unsolved" and look badly on school staff, according to the suit, which seeks more than $300,000.
The school's attorney, Jarad W. Handelman, with the Elliott Greenleaf firm in Harrisburg, said that the Hershey School "will vigorously defend against these baseless claims, and will pursue appropriate legal remedies" to protect the school and advance the interests of its students.
Handelman, a former general counsel for Gov. Tom Corbett, said the Buchan allegations and other recent suits involving Hershey students were part of a "personal crusade" by school critic Ric Fouad, an alum and New York-based lawyer who has been seeking reforms at the school for many years.
Matthew B. Weisberg, a Morton, Delaware County, lawyer who represents Buchan, said Thursday of Fouad: "I don't know who he is."
The Buchan suit is the latest to rock the super-rich central Pennsylvania educational institution, a charity that controls the Hershey chocolate and tourism empires and possesses an endowment larger than the University of Pennsylvania's.
Its mission, based on Milton and Catherine Hershey’s 1909 deed, is to lift poor children and orphans, mostly from Pennsylvania, out of poverty. But the school is also one of the most politically powerful institutions in Pennsylvania, dispensing millions through board seats and legal and construction contracts.
Three Hershey School board members quit Dec. 31 and two others have said they will depart this December as part of an agreement that settled the latest investigation by the state Attorney General's Office over excessive board compensation, board tenure, and infighting.
Board members have spent about $4 million investigating themselves over the last 18 months and have yet to appoint replacements, shrinking its ranks to six members
Josh Shapiro, Pennsylvania’s new attorney general, was sworn in to office Tuesday. His office has broad oversight powers over Hershey. Critics of the school, however, say that Shapiro's predecessors have failed to rein in the charity and compel it to spend more of its vast wealth on poor children.
In July, the school reached confidential settlements with 11 former students who lived in a dormitory with a gun-toting Hershey School staffer after he hid a digital camera in their shower.
Two former Hershey students, Abbie Bartels and Adam Dobson, filed federal suits last summer, saying they were discriminated against when they were banned from campus or expelled after suicide attempts.
Two more students who attempted suicide, including one from Cheltenham, filed discrimination complaints with the Pennsylvania Human Relations Commission in late 2016. All four cases are pending.
A 2016 Dauphin County Common Pleas suit says that a Hershey student, identified as D.P., tore her rotator cuff and shoulder tendon when she was forced to repeatedly carry a log over her head as she ran up a grassy hill for punishment. She was expelled when she couldn't complete the drill, the suit says.
"It seems to be there is a lack of oversight at the school," said Weisberg, the Morton lawyer, who also represents D.P.
The Buchan suit says that the girl’s mother, Kim, was a Hershey hairdresser who was part of a circle of friends that included school president Peter Gurt.
Buchan excelled as a student and an athlete, making Hershey's varsity field hockey team as a freshman. But she was also homesick. And when she and her mother tangled with the school over its policies, the staff turned against the girl, the suit says.
The house mother in Buchan’s boarding home, a school employee, saw a picture of Buchan on her mother's Facebook page and discovered a previously undisclosed tattoo on her hip in 2012, according to the suit.
According to the lawsuit, the school punished Buchan for violating a "no tattoo" edict even though the suit claims there was no school policy against tattoos.
Later that summer, a fire broke out in Buchan's boarding house on campus. The house parents and their adult son were at the home at the time, along with other girls.
The suit says that school employees suspected Buchan, and the Derry Township police eventually charged her with five felonies. At the nonjury juvenile trial, the judge "made a finding that Jaiden did not commit the acts for which she had been framed,” the suit says, calling the case “farcical.”
The school threatened Buchan's mother with a $700,000 restitution claim after the fire, the suit says.
The Dauphin County District Attorney's Office had no comment on the federal suit. The Derry Township police did not return a phone call.

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Inquirer Editorial: Will yet another overhaul rid the Hershey Trust board of its crony culture?

Dec 22, 2016 | Philadelphia Inquirer

By Bob Fernandez

After years of scandal, the embattled Hershey Trust board has a chance to clean up its act and set a new course. But it remains to be seen if the board will ever reform itself or continue to paper over its problems.
Three board members are set to resign on Dec. 31 and two others are scheduled to depart at the end of 2017. The overhaul is part of an agreement reached with the state attorney general earlier this year in an effort to clamp down on the board's dysfunction and excessive pay.
One problem: The board will pick the replacements. So the chances of attracting members with integrity and independence are slim. Granted, the attorney general has 30 days to review the new appointees but no veto power over them. And this is not the first time the scandal-plagued board has been through an overhaul.
If ever a board needed a fresh start, it is the Hershey Trust. The board oversees a $12.5 billion charity that owns Hersheypark and has a controlling interest in the famed chocolate company. Milton Hershey created the trust in 1909 with the mission to oversee a private boarding school for orphans and poor children.
The trust's $12.5 billion endowment is larger than the University of Pennsylvania's. Despite vast wealth to help needy kids, the board has seemed more focused on taking care of itself and throwing good money after bad.
The board's troubles go back years and never seem to get fixed.
In 2002, the board was accused of conflicts of interest, wasted assets and changed admissions policies that excluded the neediest children. The response was a deal with the attorney general that included removing 10 board members and shrinking the board from 17 to 11 members. Sound familiar?
In 2006, the trust spent $12 million for a golf course and then built a $5 million bar and restaurant on the property, claiming it needed buffer land for student safety. There were allegations the course was purchased at an inflated price to bail out a board member. Around the same time, the trust paid $7.5 million for an 18-acre roadside market that was then leased back to the owners.
In 2010, the school paid $3 million to resolve sexual abuse cases involving five former students.
Earlier this year, Hershey Trust Co. executive vice president John Estey was fired after federal prosecutors revealed he had been charged with wire fraud unrelated to Hershey. Estey, a political insider who was an aide to former Gov. Ed Rendell, admitted to pocketing $13,000 in bribe money.
In the meantime, the trust has spent more than $4 million on outside lawyers to investigate charges of misconduct that board members have lodged against one another.
The board spent $362,000 on travel, meals, limo services and hotels over a 2 ½ year stretch. Eight directors spent $18,000 just for a weekend board meeting at the Waldorf-Astoria in New York.
Most of these details have come to light as a result of the relentless reporting by staff writer Bob Fernandez, whose book, The Chocolate Trust, details the scandals.
Mark Pacella, the chief deputy attorney general who oversees nonprofits, has pushed for reforms for years, but to little avail. Replacing one set of connected board members with acolytes gets similar results. Until all of the political cronies are driven from the board and the culture is changed, Milton Hershey's vision and generosity will continue to be squandered.

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Hershey chocolate company promotes Michele Buck to CEO

Dec 21, 2016 | Philadelphia Inquirer

By Bob Fernandez

Hershey Co. promoted Michele Buck to chief executive officer as the Pennsylvania chocolate giant faces shifts in consumer food consumption and a consolidating global confection industry. The change is effective March 1, the company said on Wednesday. Buck, who has been with Hershey since 2005 and is chief operating officer, replaces John Bilbrey who announced in October he would be retiring as CEO. Bilbrey will remain as non-executive chairman. The nation's largest chocolate marker is controlled by the scandal-plagued Milton Hershey School for impoverished children, also in Hershey, Pa.

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Business Two Pa. mothers say $12B Hershey School booted students after suicide attempts

Dec 6, 2016 | Philadelphia Inquirer

By Bob Fernandez

Two Pennsylvania mothers say the $12.3-billion Milton Hershey School has refused to allow their children back onto campus after they became depressed and tried to take their lives, in the latest suicide-related incidents at the boarding school for impoverished students.
One of the mothers, who lives in Lancaster, has filed a complaint with the Pennsylvania Human Relations Commission. The second mother lives in Cheltenham Township.
The school — which says it has a staff of more than 100 medical and behavorial-health professionals — placed their children on “medical leaves of absence” and returned them home, the mothers said. A national suicide expert said a school should not automatically expel or suspend a student struggling with suicide and that any decisions should be made in concert with the family.
The nation's richest private school spends about $118,400 a year per student on education and overhead, its latest tax return stated. Founded in 1909 as an orphanage, the charity still controls the Hershey Co. chocolate giant with its rich stream of stock dividends.
“It's so wrong," said Angel Adelizzi, the Lancaster mother of a 16-year-old boy. “I totally bought into the idea that they are a second family. Then he had a mental-health issue and they kicked him out.”
In response to Adelizzi's complaint to the Pennsylvania Human Relations Commission, a state agency that enforces anti-discrimination laws, the Hershey School said that her son “needed services that were not and could not be provided” at the school.
The scandal-plagued charity is already under a federal investigation for its treatment of children with disabilities, The Inquirer has reported.
The Justice Department declined on Tuesday to comment on the status of the investigation.
In June, lawyers for former students Abbie Bartels and Adam Dobson filed separate federal lawsuits in Philadelphia federal court claiming that the charity discriminated against them after deep depression and suicidal thoughts.
Bartels, a 13-year-old girl, took her life two weeks after the Hershey School wouldn't let her back on campus in 2013. Her mother and father are suing the school.
The Bartels and Dobson suits — both recently transferred to the Harrisburg federal court — claim that the school's actions violate disability laws.
The laws say that an institution must reasonably accommodate individuals with mental or physical disabilities.
Hershey School spokeswoman Lisa Scullin said in a statement on Tuesday that there was not much that she could share about this story because of student confidentiality.
But she said that students are rarely placed on medical leave.
“Our goal is always to do what is best for the individual child and all children entrusted in our care. It's important to remember that, first and foremost, we are a school for high-potential children from poverty,” she said.
A call to action
Christine Moutier, the chief medical officer at the American Foundation for Suicide Prevention, said that suicide rates have been trending up over the last two decades and while that should be a call to action for schools and communities, the rates are still statistically low — for 15-to-24 years-olds, about 12 suicides per 100,000.
Suicidal struggles are more common, and it would be the “rare school” that won’t have to deal with suicide over time, she added.
Moutier said it was “absolutely not recommended” that a school automatically expel or suspend a student and that “it may be better for the student to remain in school.”
Decisions should be made among the family, care providers and the institution, she said.
The Inquirer is withholding the names of the teenagers at the mothers' requests.
Kathy C. is a 51-year-old Cheltenham mother who undergoes 15 hours of dialysis a week for a hereditary kidney disease. The Inquirer is withholding her last name to protect the identity of her 16-year-old daughter who has the same name and enrolled at the Hershey School in September 2014 as an eighth grader.
Her daughter did well and liked it. She was depressed entering her freshman year and attempted suicide by overdosing on prescription pills.
The daughter was treated at a Hershey-area mental-health facility. The Hershey School put her on a leave of absence.
In June, her daughter said she wanted to be return to the Hershey School. Kathy C. said the school has dragged out the review. The school now says she might be readmitted in February — 17 months after the overdose incident.
The mother said she intends to file a complaint with the Pennsylvania Human Relations Commission, which investigates discrimination complaints and makes determinations. An unfavorable finding against the school can be appealed to court. She would like her daughter readmitted because she is better off there with good meals and friends, Kathy C. said.
John Schmehl, a partner with Dilworth Paxon firm in Philadelphia, is representing the two mothers. He had no comment on Tuesday.
Adelizzi, 34, said her son enrolled in January 2012. All seemed well.
In August 2015, Hershey officials told students they should talk to house parents about mental-health concerns.
Adelizzi's son told his house parents who are school employees that he felt like hurting himself. “I praised him for seeking help,” Adelizzi said. “That was brave for a teenager. He did the right thing.”
Her son was treated at a mental-health facility. Doctors prescribed an anti-depressant.
Her son complained that he didn't like the medication because it made him tired. When he came home for the Easter holiday this year, he attempted to take his life. Adelizzi found him in his room and rushed him to the emergency room.
The school told Adelizzi that they did not think he should return to the campus and he would be put on medical leave.
Adelizzi opposed this. Her son also wanted to return to the school. “His life was there. His friends were there. I could not understand how they could do this and take away half of his support system. Being at Milton Hershey would be his normal.”
The Hershey School gave Adelizzi a list of requirements she had to do for her son to be readmitted. The May 6 letter misspelled Adelizzi’s first name and said her son would be on medical leave until Aug. 1, 2017.
One of the requirements for readmission was that Adelizzi had to enroll her son in a new school. Adelizzi’s son worried that he would not attend public school with nice clothes and sneakers. At the Hershey School, the institution provides clothing and food for free.
He had never stolen before, Adelizzi said. But her son broke into several houses and was caught on a surveillance camera. He is now under mental-health evaluation at a facility in Allentown.

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Readers: Startlingly rich Milton Hershey School should expand mission with $12B

Dec 2, 2016 | Philadelphia Inquirer

By Bob Fernandez

Tears came to the eyes of a retired Pennsylvania college president thinking about what could be done with Milton Hershey’s untapped billions of dollars.
A New Hope woman’s “blood boiled.”
A Center City real estate agent observed: “The money keeps going up in an upward funnel and doesn't seem to get out to do more public good.”
Online reactions and suggestions ran the gamut after a recent Inquirer and philly.com story on the surprisingly rich Milton Hershey School, which spent only 1.9 percent of its assets on its programs and overhead.
Readers said they were stunned by the boarding school’s vast $12.5 billion in investments and land holdings in a state with 500,000 poor children.
Flush with steady dividend payments from the iconic chocolate company, the Hershey School's endowment is now 10 times the size of Phillips Exeter Academy, the nation's second-richest private school. If Hershey were compared with universities, its holdings rank number seven in the nation, ahead of the University of Pennsylvania.
The online story solicited suggestions as to what to do with these underused funds. Among them: Distribute college scholarships, open private schools around the state, rescue Girard College, fund programs for juvenile delinquents, train foster parents, and educate women prisoners.
Bill Crean, 41, of Wayne, wrote: “How about founding ... some well-funded schools in cities that could use them, starting with Philly? Imagine the potential impact!”
Milton and Catherine Hershey’s 1909 deed says the trade school and orphanage was to be located in Hershey and conservatively managed — which means it can use only stock dividends, interest, and rents for the school’s budget. The school currently has $800 million in a surplus rainy day fund that it says it needs for emergencies.
But a late-1990s state law also says that charity trustees can override legacy mandates and spend up to 7 percent of a charitable institution’s assets -- which would be more than triple the Hershey School’s most recent publicly available budget of about $240 million.
Velma Redmond, the chair of the boards with responsibility over the Hershey School, said in a statement last week that the charity was considering expanding its “spending authority.”
Donald Kramer, a lawyer with the Montgomery McCracken law firm in Philadelphia and an expert on nonprofit law, said the Hershey School’s board or perhaps the attorney general could seek Orphans' Court approval to broaden the Hershey charity’s mission.
One way would be to show that Hershey has failed its mission to educate poor children, and that’s not true, Kramer said.
A more modest and practical option would be to seek a "deviation" through the court that would allow changes to Hershey's original mission, such as opening schools outside Hershey, Kramer said.
Taking this route, the charity could tell the court that it has too much money to reasonably use for impoverished children in Hershey and could expand in other ways, Kramer said.
Hershey School president Peter Gurt and Redmond declined requests for interviews.
In the statement, Redmond said: “We have looked at Pennsylvania law for possibilities that would provide us some leeway, and we will continue to explore possible avenues to increase our spending authority.
“For now, we are confident that adhering to the terms of the Deed of Trust provides the soundest means of providing income needed to operate and grow the School in a responsible manner.”
Seeking to add 300 students, the Hershey School is developing a former luxury golf course it bought a decade ago at an inflated price for additional student housing for $120 million, taking total enrollment to 2,300 over the next few years.
The Hersheys died with no heirs, leaving the charity, created as a trade school and orphanage, to self-perpetuating boards. The charity’s board members have been investigated twice by the attorney general since 2013 for excessive pay and travel costs.
Five of the nine board members were forced to resign by the attorney general to settle the latest investigation in late July. Three board members are expected to resign Dec. 31, and an additional two board members, including Redmond, are expected to resign a year later.
Readers' suggestions after the Nov. 6 story focused on social services and education for impoverished children or adults.
Richard Kneedler, a retired president of Franklin & Marshall College, said: "Milton Hershey was clearly concerned about education so that anything that could be done to broaden the focus of the trust should have education at its heart."
The Hershey School could preserve its current campus in Hershey but divert hundreds of millions of dollars into college scholarships for low-income Pennsylvania children, partnering with in-state colleges to help cover tuition and other costs, Kneedler suggested.
As an example, Kneedler said, the Hershey charity could spend $100 million by distributing $10,000 college scholarships. At that level, the charity could hand out 10,000 scholarships a year. At $200 million, it could be 20,000 scholarships a year, and so on.
“You are probably leveraging this three to four times. You will produce hundreds of thousands of college graduates in 20 or 30 years. These are graduates who could have a profound impact on the state,” said Kneedler, who said he was speaking for himself and not for Franklin & Marshall.
“It brings tears to my eyes as to what this would do for our inner-city schools.”
Ellen Melchiondo, a retired teacher and women’s prisoner advocate in New Hope, said “it’s a tragedy that this money is not being used” and “it makes my blood boil.” She said she would like Hershey money to educate female prisoners.
Daniel Merin, 32, of Roxborough, said he believed that the Hershey charity could invest in impoverished neighborhoods instead of just recruiting students from those areas.
“There is a lot of unspent money, and they will only be able to do so much in Hershey,” Merin said. His suggestion was to fund training for foster parents — which he sees as a big need.
Albert Yee, 36, a Fishtown resident, wrote that he "would ... partner with other well-established groups" like Pew Charitable Trusts and William Penn Foundation "to create a plan to expand their reach in the state. There are plenty of areas from Erie to Pittsburgh to Philadelphia to Scranton that can benefit from the influx of resources and cash."
Yee noted the restriction in the 1909 deed that says the school has to be located in Hershey. But “you've already changed it [in other ways], so what's the big deal?”
Several readers said that the Hershey charity should throw a financial lifeline to Girard College, which also educates impoverished children on a boarding campus in Philadelphia.
“It seems like a natural fit for Hershey to take Girard College under its wing and deepen its commitment to Southeastern Pennsylvania,” said Will Herzog, 19, a sophomore at Haverford College.
Domenick Parris, 52, who lives in Glenolden and works as a Center City real estate agent, compared the school's assets to an “upward funnel” that doesn't benefit the public.
Parris suggested building five additional schools in needy areas around Pennsylvania, two of which would be in Philadelphia. Each of the five schools would enroll at least 1,000 students.
Parris believed that if Milton Hershey were alive or could have seen into the future, he would have changed his deed to “help other kids.”

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Hershey Co. CEO Bilbrey to resign; more turmoil at top of rich charity

Oct 14, 2016 | Philadelphia Inquirer

By Bob Fernandez

Hershey Co. CEO John Bilbrey is stepping down from the iconic Pennsylvania company, even as the firm's controlling shareholder, the $12.5 billion Milton Hershey School for impoverished children, faces its own board-level turmoil.
Bilbrey, 60, told the Hershey Co. board Thursday that he would resign on July 1, 2017, and the company disclosed the decision Friday. News of the planned departure comes just weeks after Hershey rejected a takeover from rival Mondelez International Inc. Bilbrey will continue as non-executive chairman after he steps down as chief executive officer and president. The company board hired the executive-search firm Egon Zehnder to look for his replacement.
Erin Lash, senior equity analyst with Morningstar Inc., said on Friday the "most likely" internal candidate to succeed Bilbrey was Michele Buck, who was promoted to executive vice president and chief operating officer at the Hershey Co. in June.
"We still view it as highly unlikely that [Hershey] will pursue a big deal," Lash said. She noted the need on the part of the 2,000-student Hershey School for the cash from Hershey Co. stock dividends to run its educational programs. Debt to close a big acquisition could threaten that Hershey Co. dividend stream.
In a research note on Friday, UBS analyst Steven Strycula wrote that the Hershey Co. faces intensifying competition in the U.S. confection industry and must find a profitable distribution solution for its underperforming China business. Also he wrote in the report: "We believe Hershey needs to outline a more detailed go-forward strategy."
Bilbrey, who joined the Hershey Co. in November 2003 and was compensated $10.8 million in 2015, is leaving a difficult situation.
Hershey declined a $23-billion offer from Mondelez in late August as other candy and food companies -- facing shifting consumer tastes in a low-growth industry -- are busy merging and consolidating operations on a global scale, leading its stock to plunge more than $15.
Mondelez initially bid $107 a share for Hershey stock and then reportedly boosted the offer to $115 a share. On Friday, Hershey stock closed at $96.47, up 82 cents.
Meanwhile, the board of the controlling shareholder in the Hershey chocolate company, the charitable trust that finances the Hershey School, is being reconstituted as part of a settlement with the Pennsylvania Attorney General's Office. The settlement was reached in late July. The investigation looked into compensation among board members, travel, governance, and board tenures.
Five of nine trust board members will resign by next December. Nine new members could join the trust board over the next 18 months, based on the attorney general's settlement. The trust has a voting control of 80 percent of the chocolate company.
The Hershey chocolate company is the biggest asset in the $12.5 billion trust that finances the school, one of the nation's richest child charities.
"Now is the right time to begin the process of handing over the reins as CEO as it will allow me to spend more time with my family and wonderful grandchildren," Bilbrey said.

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Mondelez drops talks on possible $22.3B takeover of Hershey

Aug 30, 2016 | Philadelphia Inquirer

By Bob Fernandez

Global snacks giant Mondelez International Inc. ended negotiations on a potential $22.3 billion takeover of Pennsylvania chocolate maker Hershey Co., saying there was "no actionable path forward."
Mondelez, based in the Chicago area and the marketer of Oreo cookies and Nabisco products, released a statement Monday, after U.S. stock markets closed at 4 p.m.
Shares of Hershey - which had been bolstered by takeover speculation over the last month - fell 11 percent in extended trading to about $99 a share.
In June, Mondelez had offered $107 a share for Hershey and reportedly had increased the bid recently to $115 a share. But it was not enough.
Hershey spokeswoman Jennifer Sniderman said there had been additional discussions with Mondelez. But she added, "I can confirm our understanding that Mondelez is no longer pursuing a combination with Hershey. Beyond this, we are providing no further comments."
Acquisition of Hershey by Mondelez had been a long shot. The effort coincided with an investigation by the Pennsylvania Attorney General's Office and continued turmoil at the $12.5 billion Hershey charitable trust, which controls the chocolate company for the benefit of poor children.
Stock dividends from the nation's largest chocolate company help pay for expenses at the 2,000-student Milton Hershey School. Student expenses are $118,000 a year a child, according to the charity's tax return. Enrollment is restricted to impoverished youngsters.
In late July, the state Office of Attorney General settled the investigation with an agreement that will force five members off the charity's nine-member board by late 2017.
In addition, as part of the agreement, the charity is expected to appoint nine new board members, bringing the board to 13 members.
With the combination of the forced resignations and expected new members, the charity's board will have a new majority by 2018.
"Following additional discussions, and taking into account recent shareholder developments at Hershey, we determined that there is no actionable path forward toward an agreement," Mondelez chief executive Irene Rosenfeld said in a statement Monday.
A Mondelez spokesman said the company would not comment beyond the statement.

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Inquirer editorial: How a Hershey's kiss embodies the Kathleen Kane era

Aug 3, 2016 | Philadelphia Inquirer

By Bob Fernandez

The perpetually wayward Hershey Trust was an early focus of candidate Kathleen Kane's vows to be a tough top prosecutor. Her subsequent settlement with the chocolate-fueled charity as a newly minted attorney general - a capitulation that possessed all the toughness of a peanut butter cup - was one of the first signs that she would not live up to her promises.
It's fitting, then, that here at the bitter end of her tenure, Kane has just signed off on what appears to be another sweet deal for Hershey, as the Inquirer's Bob Fernandez reported last week. It's one more reminder - and one of the last, one hopes - of the sheer emptiness of the bluster with which Kane sought and has conducted herself in office.
As it happens, the Democrat announced her latest prosecutorial abdication the same week that a judge rebuffed an effort to derail Kane's own prosecution on charges that she leaked grand jury information to smear a rival. Montgomery County Judge Wendy Demchik-Alloy ruled that a trove of profane official emails discovered by Kane's office cannot be introduced at her trial, which is scheduled to begin next week if the state Supreme Court denies a last-ditch appeal.
The pornographic and bigoted emails raised troubling questions about the judges, prosecutors, and other officials who exchanged them, some of whom were deservedly expelled from the state payroll. Ever since Kane happened upon the inappropriate communications in the course of another investigation, however, she has released them selectively to distract from her own shortcomings. Meanwhile, she has yet to produce the results of a long-promised comprehensive investigation of the material.
This pattern of spectacle without substance emerged with Kane's approach to the Hershey Trust. She is not the first attorney general who failed to rein in the extraordinarily wealthy, politically connected charity, which controls the company of the same name and runs a boarding school for needy children according to the wishes of candy magnate Milton Hershey. But Kane distinguished herself during the 2012 campaign by taking issue with Republican opponent David Freed's relation by marriage to a former chairman of the trust. When Freed promised to address the conflict by turning the matter over to a special prosecutor, Kane retorted, "I am an independent prosecutor, and Mr. Freed would have to hire one."
The following year, Kane absolved Hershey officials of any wrongdoing in a pair of dubious real estate purchases in exchange for vague promises to undertake modest reforms. Much like her failure to prosecute Democratic legislators caught taking cash from an informant, Kane's latest deal with Hershey is in the same conciliatory spirit. Despite extensive evidence of extravagant executive salaries and expenses, it requires only that five board members resign through next year and does little to preclude future abuses.
Because Kane was stripped of her law license in the wake of the criminal charges against her, her deputy, Bruce Castor, had to sign off on the deal. Given her campaign-season one-liner, it's an irony that Kane is the one who had to hire a prosecutor - and that the commonwealth will be deprived of one until the merciful end of her tenure.

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Business Critics assail Kane's latest attempt to reform the Hershey School board

Jul 30, 2016 | Philadelphia Inquirer

By Bob Fernandez

Pennsylvania Attorney General Kathleen G. Kane announced Friday that five of the longest-serving and highest-paid board members on the $12.3-billion Hershey Trust for poor children would resign over the next 18 months after a probe into the board's compensation, governance, and travel expenses.
Friday's settlement would create a new majority for the embattled nine-member board. It also was the second attempt by Kane in four years - and the fourth since 1994 - to fix the scandal-plagued charity.
Hershey board members, while overseeing a school for poor children, have earned millions of dollars in compensation and spent more than $4 million on outside law firms since mid-2015 to investigate one another over conflicts of interest and possible insider trading involving Hershey chocolate company stock.
In a 30-minute news conference, Kane said she did not require that Hershey Trust board members reimburse the legal fees to the trust for poor children because the Attorney General's Office considered those payments part of a "legitimate dispute."
Kane said she believed that "we are evolving to a brighter future" for the trust. She saw it as a good sign that "we did not have to go into court and sue them to force changes."
Because Kane's law license has been suspended as she awaits a criminal trial next month, First Deputy Attorney General Bruce L. Castor Jr. signed the agreement.
Trust chairwoman Velma Redmond said in a statement that the talks with the Attorney General's Office were "productive. We are satisfied with the outcome."
Critics lost no time attacking the agreement, which they said would not force the charity to correct its ways and might be weaker than past ones.
Ric Fouad, a school alumnus who is president of Protect the Hersheys' Children, an advocacy group, said, "Pennsylvania officials have again taken pains to preserve the Hershey child-welfare charity as a patronage slush fund.
"This agreement does nothing for needy kids and everything for those profiteering at kids' expense. Attorney General Kane has again disgraced her office and thrown needy kids under a bus."
"It's riddled with loopholes," added Joseph Berning, another alum who has been advocating for change since the mid-1990s, citing language in the agreement such as "best efforts" to maintain a 13-member board. "I'm so frustrated I can't see straight."
Because the Attorney General's Office did not force the board members to reimburse the millions of dollars in legal fees, "they can do whatever they want with the trust money as long as they [collectively] agree to it. The attorney general has given them carte blanche," Berning said.
The Hershey Trust is considered the nation's largest child charity because it finances and oversees the 2,000-student Milton Hershey School.
Buoyed by decades of dividends from Hershey Co. stock, the trust has amassed $12.3 billion in assets, about 10 times the endowment for Phillips Exeter Academy, a bellwether prep school.
The agreement, which will be filed with Dauphin County Orphans' Court, says that the Attorney General's Office has to be given 30 days' notice when the Hershey Trust is about to appoint new board members and that members will serve maximum 10-year terms, which could be extended by one year.
The agreement sets $110,000 as annual board compensation, plus an additional $10,000 to chair a board committee. Trust board members can still sit on the boards of for-profit companies owned or controlled by the charity, which can boost their compensation significantly.
The agreement calls for the Hershey Trust boards - one to manage the charity's finances and a second to oversee the school, but comprised of the same individuals - to expand to 13 members from the current nine.
Former chairman Robert Cavanaugh, Joseph Senser, and James Nevels will resign by Dec. 31, according to the agreement.
Cavanaugh, an alum who was appointed to the trust in 2001, is a former trust board chairman. Last year, Cavanaugh was embroiled in a conflict-of-interest scandal when his college-age son was hired for a lucrative summer internship, earning about $13,000 over 10 weeks from one of the Hershey Trust's outside money managers.
The Hershey Trust board paid a New York law firm $650,000 to see if Cavanaugh violated the trust's conflict-of-interest policies. The report - which ended up costing about $38,000 a page - cleared Cavanaugh.
Redmond and board member James Mead will have to resign by Dec. 31, 2017.
Redmond joined the board in 2003 and is well past the 10-year limit. But Kane said it was important for Redmond to stay for continuity with so many board departures.
While Kane called Friday's changes "wonderful," they seem barely different from ones the trust voluntarily agreed to more than 20 years ago.
In 1994, the Hershey Trust announced, as part of a reform package to settle an attorney general's investigation, that it would restrict board members to two five-year terms, according to an April 7 news release from that year.
As part of those reforms, the trust also said its "new criteria for board membership" included "school-related experience, such as education and child development."
The Hershey Trust boards still lack experts.
Kane said her investigation did not involve the Hershey Co., which is controlled by the trust.
Mondelez International Inc. offered to acquire Hershey Co. for $107 a share in June but the offer was rebuffed by the company's board. Many on Wall Street expect Mondelez to make a higher offer with the trust board weakened.

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Attorney general, Hershey Trust reach tentative deal

Jul 23, 2016 | Philadelphia Inquirer

By Bob Fernandez

The troubled Hershey Trust for impoverished children and the Pennsylvania Attorney General's Office have reached a deal to settle the latest investigation into the giant charity that will include board member resignations, according to a source with direct knowledge of the agreement.
The trust and the Attorney General's Office confirmed that a deal had been struck late Friday but declined to disclose details. The number of resignations on the nine-member board could not be immediately determined.
The Attorney General's Office requested in February that three members leave the fractious board because they had served more than 10 years. An additional two members will hit the 10-year mark in 2017.
"We have reached an agreement in principle and are working on the final details in productive discussions," trust spokesman Kent Jarrell said late Friday.
First Deputy Attorney General Bruce L. Castor Jr. said that he met on Thursday afternoon with trust officials and a trust's lawyer, and "agreed on behalf of the attorney general in principal to a series of changes that the trust would implement. When that is reduced to writing, and if it is signed by us and them, Pennsylvania Attorney General Kathleen Kane will make the terms public."
The Attorney General's Office opened the investigation into the scandal-plagued $12.3 billion charity earlier this year over its compliance with a 2013 settlement agreement.
Leaks from the trust have revealed a board that hired lawyers and spent millions of dollars investigating itself.
The Attorney General's Office also has raised concerns that the trust board members violated compensation curbs that were part of the 2013 agreement with the attorney general.
In the midst of this turmoil, Mondelez International Inc. has made an offer to buy chocolate giant Hershey Co. for $23 billion. The trust controls the Hershey company through super-voting shares. The Hershey company board rejected the Mondelez offer, and many on Wall Street expect Mondelez to make a higher one.
The multibillion-dollar trust finances and oversees the 2,000-student Milton Hershey School for impoverished children.

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Board member at troubled Hershey Trust resigns

Jul 12, 2016 | Philadelphia Inquirer

By Bob Fernandez

In a sign of deepening turmoil, Hershey Trust board member Joan E. Steel resigned her position at the troubled $12.3 billion charity for impoverished children as the giant charity faces its latest investigation by the Pennsylvania Office of Attorney General.
The office has set a July 31 deadline for the trust to comply with its demands for reforms, which include the removal of three long-standing board members and other governance changes.
Steel, who lives in the Chicago area, was not one of the three board members the attorney general has been seeking to remove.
Her resignation also comes as the Hershey Co. candy giant - which is controlled by the Hershey Trust - has rejected a $23 billion offer from Mondelez International Inc. Some say Mondelez may make a higher bid. Both stocks traded slightly lower Monday.
Trust spokesman Kent Jarrell confirmed Steel's departure on Monday and said no reason was given when Steel gave notice over the weekend.
Steel could not immediately be reached for comment. She was compensated $106,500 for the most recent fiscal year, according to the charity's latest tax return.
With Steel's resignation, the trust board now consists of nine members.
Jarrell said that the boards - one to administer the $12.3 billion in charitable funds and the other to oversee the 2,000-student Milton Hershey School - can continue to function as they look for Steel's replacement.
In addition to Steel, three board members have resigned since late 2015, one of them Drexel University president John Fry.
Jeffrey Johnson, spokesman for the Attorney General's Office, said on Monday in response to Steel's departure that "this is an ongoing investigation, meaning we cannot comment at this time."

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Hershey rejects Mondelez buyout, but more offers may be coming

Jul 1, 2016 | Philadelphia Inquirer

By Bob Fernandez

The Hershey Co. candy giant Thursday rejected a takeover bid from Oreo-maker Mondelez International Inc. that would have kept the combined firm's chocolate operations in Hershey, Pa.
But even as the Hershey board was unanimously rejecting the offer, its stock was rising. Hershey shares closed up $16.35 on Thursday - or almost 17 percent - to $113.49. Shares retreated slightly after hours but stayed in that range as analysts speculated that the move on the iconic chocolate company may yet attract more offers.
Mondelez offered $107 a share and a total of $23 billion for Hershey, which has faced slowing growth and remains mostly a U.S. firm.
Investors believe that Mondelez, which makes Cadbury chocolate in Europe and is more international in scope, could bid up to $120 a share or more.
Keith Denninger, an event-driven strategist with the institutional research firm Olivetree Financial in Stamford, Conn., said Mondelez may be seeking a deal because the trust that controls Hershey faces internal turmoil and could be vulnerable to a buyout.
Mondelez also has come under pressure from activist investor William Ackman, who wants the company to increase revenues or sell out. Mondelez, based in Deerfield, Ill., declined comment.
The $12.3 billion Hershey Trust controls about 80 percent of the voting control of the Hershey Co. as the fiduciary for the 2,000-student Hershey School for impoverished children and orphans, the richest private school in the nation.
The Pennsylvania Office of Attorney General is seeking the removal of three trust board members who have served more than 10 years, including chairwoman Velma Redmond and former chairman Robert Cavanaugh, by July 31.
Cavanaugh also holds a seat on the candy company board, as does former Pennsylvania Gov. Tom Ridge.
Mondelez has reportedly said it would change its name to Hershey and run its global chocolate operations from the central Pennsylvania town, according to a report by CNBC. News of a possible offer was first reported by the Wall Street Journal.
Hershey, whose confectionary brands include Reese's, Jolly Rancher, Good & Plenty, Rolo, and Twizzlers, faces its own challenges, including a cutback in sugar consumption by Americans and a relatively small international business as other candy giants have globalized operations.
Seeking to diversify its sugar-based products, Hershey acquired the company that makes and markets Krave jerky in March 2015.
Hershey had sales of $7.4 billion and profits of $512 million in 2015. Stock dividends on Hershey shares help finance the educational programs at the Hershey School.
In 2015, Mondelez reported sales of $29.6 billion and profits of $7.3 billion.
"From a geographic perspective, the move makes sense," Jack Skelly, an analyst with Euromonitor, told Bloomberg News. "Mondelez has achieved its position as the second-largest confectionary manufacturer in the world without a sizable presence in the United States."
But a Mondelez deal for Hershey seems far from certain due to state politics.
In 2002, then-Attorney General D. Michael Fisher and the Dauphin County Orphans Court halted the sale of the Hershey Co. to Wm. Wrigley Jr. Co. for $89 a share when the community and unionized workers protested the deal in the streets.
The company may not rekindle that support, as over the last decade it has closed its big chocolate plant in downtown Hershey and moved those manufacturing operations to Mexico.
The company has retained a manufacturing complex with two factories in Hershey, one that makes milk chocolate and a second that makes Reese's Peanut Butter Cups and Kit Kats.

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Did the Hershey School reject students for depression? Two suits say yes

Jul 1, 2016 | Philadelphia Inquirer

By Bob Fernandez

Lawyers for two former students, including a 14-year-old girl who committed suicide, sued the $12.3 billion Milton Hershey School on Thursday in federal court here, alleging that they were expelled for depression and having suicidal thoughts.
The suits say the school for impoverished children violated a 2012 agreement with the Justice Department to treat disabled students better and seeks unspecified monetary damages and reforms.
Abbie Bartels, 14, hanged herself in her home in central Pennsylvania in June 2013 after she was told she could not return to the 2,000-student boarding school for her eighth-grade graduation. She had enrolled there as a 5-year-old but exhibited depression only toward the end of eighth grade, the suit said.
"Abbie was terminated by [the Hershey School] and released back to a poor, unstable, and at-risk environment, contrary to any reasonable treatment," said the suit filed by her parents, Julie Ellen Wartluft and Frederick Bartels.
Spokeswoman Lisa Scullin said the Hershey School, partly funded by Hershey Co. chocolate profits, "is firmly committed to the safety and fair treatment of our students" who qualify under the Americans with Disabilities Act.
The law provides that private schools and other public places cannot simply bar those with physical or mental-health disabilities but must make accommodations for them.
Scullin said that "some children have very severe emotional or mental-health issues that go beyond our school's ability to help them. These students need to be cared for in a professional health-care environment, not in a boarding school setting."
The second suit, filed by Adam Dobson, said that Dobson had worked in the school's admissions department but was eventually expelled in the summer of 2013 after he underwent treatment for depression and told school officials he was considering suicide, his suit said.
His houseparents, the suit said, forced him to watch "a religious-based video that was intended to 'cure' him of being gay." Hershey School students live in more than 150 homes, staffed by houseparents who are school employees, on the vast, 10,000-acre Hershey property. Dobson is now 21 and living in New York.
Lawyers from the Dilworth Paxson LLP firm in Center City are representing the plaintiffs in both cases.
Scullin said the notion that houseparents forced Dobson to watch the video was "an outrageous allegation and a practice the administration would never allow or condone."
The federal suits add to the mounting crisis at the super-rich Pennsylvania institution.
Investigators for the Justice Department have been looking into whether the school fails to enroll physically disabled children and expels students with mental-health problems, as Thursday's suits in Philadelphia claim.
The federal agency concluded in 2012 that the Hershey School violated federal disabilities laws by rejecting a 13-year-old Delaware County boy for admission because he had contracted HIV, the virus that causes AIDS.
The Hershey School settled the case by paying the boy $750,000 and agreeing to comply with the Americans with Disabilities Act.
The Justice Department declined to comment Thursday.
Separately, the Pennsylvania Attorney General's Office is investigating the Hershey Trust - the entity created by Milton and Catherine Hershey more than 100 years ago to finance the Hershey School - over its compliance with a 2013 settlement agreement meant to curb soaring director compensation on the trust's complex of boards, and other financial irregularities.
The same nine trust directors have oversight of both the trust's finances and the Hershey School.
Trust directors collectively earned $2 million in compensation by holding seats on for-profit companies owned or controlled by the trust, according to the Hershey School's latest IRS tax return, for the tax year ending July 31, 2015.

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Business Hershey School's board, despite orders to be frugal, runs up big expense bills

Jun 20, 2016 | Philadelphia Inquirer

By Bob Fernandez

The directors of the Hershey School oversee an educational facility in central Pennsylvania for impoverished children, but you might not know it from their expense reports.
Eight directors ran up an $18,000 tab for a weekend board meeting last June at New York's Waldorf-Astoria hotel, according to internal records obtained by the Inquirer.
All 10 spent $362,000 in travel, meals and hotels over the last 21/2 years, including at least 60 limousine rides, often from the Philadelphia and Baltimore airports.
Then there was the $6.9 million that board members were paid for their service over the last three years, an unusually lucrative perk for a board overseeing a school for poor children.
Lavish spending - a concern at the super-rich trust - is being sharply questioned again by regulators at the Pennsylvania attorney general's office who tried to curb directors' compensation and expenses in a 2013 agreement between the $12 billion Hershey Trust and the state agency.
Mark Pacella, the chief deputy attorney general who oversees nonprofits, has warned trust officials that the charity may have violated the 2013 agreement. Pacella also questioned the legitimacy of limo rides, airfare and board compensation, internal trust memos show, and is asking directors to return compensation deemed excessive.
Board members could not be reached for comment or referred questions to trust spokesman Kent Jarrell, who said that the trust had followed the rules it agreed to.
"Policies concerning compensation, travel, and expenses, as defined in the 2013 agreement with the Attorney General's Office, have been scrupulously followed by the boards," Jarrell said in a statement. "And since the agreement went into effect, no directors have been reimbursed for first-class travel."
The trust, which has been negotiating with Pacella since January, expects "to resolve outstanding concerns," Jarrell added.
Pacella declined to be interviewed.
The expense documents obtained by the Inquirer describe hotel stays, limo and cab rides, flights, and meals, and represent the first public airing of the trust board's expenses. The 36 pages include more than 1,000 entries starting right after the agreement with the attorney general was signed in May 2013 and extending to last September.
The Hershey Trust, say experts who have followed it for years, has become too rich for its narrow mission of educating poor children in rural Hershey, leading to temptation for directors.
The trust controls the publicly traded chocolate company, the state-chartered Hershey Trust Co. bank, and the Hersheypark attraction.
The 2,000-student Hershey School itself is on a 10,000-acre trust-owned property in the Hershey area, established by Milton and Kitty Hershey in 1909.
"It looks from a distance like the [Hershey Trust] needs a real housecleaning in the board room," said Randall Roth, a trust law expert at the University of Hawaii's William S. Richardson School of Law.
Roth, a national expert on trust law, said some Hershey directors seem to be treating the trust fund for poor children as a "cookie jar" for their own benefit.
"These piecemeal reforms aren't getting it to where it needs to be," said Jonathan Klick, a professor at the University of Pennsylvania Law School who has written on the Hershey Trust. "The whole set-up is bad from top to bottom."
Klick said he believes that the trust should be dissolved or the organization restructured.
Besides an attorney general probe on spending and board infighting, the Hershey School is facing many challenges. Eleven former Hershey students have begun lawsuits over the actions of a gun-toting employee who was caught spying on male seniors in the shower with a hidden camera. In May, a Hershey School house father was charged by local law enforcement with inappropriately touching an 11-year-old student in his care, the second such case in two years.
The Justice Department also is investigating whether the school expels students with mental-health problems and fails to enroll physically disabled children.
Students live in more than 150 school-owned homes staffed by employees on the Hershey property. Critics say the decentralized setting holds too much potential for abuse.
About a quarter of the students are from Dauphin, Lebanon and Lancaster Counties, and nearly half come from other parts of Pennsylvania, including Philadelphia. The remainder come from other states.
The trust's 2013 agreement with the attorney general set retainers and fees per meeting among board members in a bid to hold down payments.
But pay increased after the agreement was put into effect with the addition of two board members for at least part of the year. Board members earned $1.8 million in fiscal 2013, the year before the agreement, and $1.9 million the first year afterward, tax returns show.
The highest-paid were Philadelphia-area money manager James Nevels, who received $1.7 million over the last three years, and Robert Cavanaugh, a former trust board chairman and a Los Angeles resident, who earned slightly more than $1 million.
Directors such as Nevels and Cavanaugh earned such compensation because they sat on the Hershey Co. chocolate company's board as well as that of the trust's bank.
The trust controls the Hershey Co. chocolate giant through a super-voting class of stock and can replace the board for poor performance. But the trust exercises no direct management over the chocolate company, which has its own board of directors and executive team.
The trust does receive Hershey Co.'s dividends, propelling the trust's assets to $12 billion, about 10 times the endowment of Phillips Exeter Academy. The trust's sole purpose is to fund the Hershey School.
Disputes over expenses were supposed to have been resolved by the 2013 attorney general agreement. Directors agreed to heed a state-mandated travel expense and reimbursement policy.
Directors travel to attend six Hershey Trust board meetings, most often lodging at the trust-owned luxury Hershey Hotel. The board also holds an annual retreat and other events such as the one at the Waldorf in New York.
Records show that the trust paid about $650 a night and two of the board members stayed four nights at the Waldorf, running up tabs of almost $2,600 each.
Trust spokesman Jarrell said the Waldorf was "an appropriate location because New York City was a convenient place for traveling board members to come together, and we were able to get a competitive and reasonable rate."
Four directors who lived outside Pennsylvania or New York - former chairman Cavanaugh; Joseph Senser, of Minneapolis; and Joan Steel and Robert Heist, both of the Chicago area - accounted for nearly all the airfare expenses.
They billed the charity about $113,000 in airline tickets and change-seat fees over 2½ years, including 40 airline seat upgrades or choice seats in 2014. The records describe flights with the notation "air" and do not say whether those tickets were first-class.
Limos were a favored mode of transportation for directors who flew into the Philadelphia or Baltimore airports and needed rides to Hershey. Records show that limo costs ranged from $250 to $500 a trip, and the total bill for limos came to about $20,000.
Cavanaugh, who helped his son obtain a $13,000 summer internship in 2015 with one of the trust's asset managers, had the highest expenses over the period: $82,520.
Jarrell said Cavanaugh's expenses were "consistent with the fact that he lives on the West Coast."
Senser, a former player with the National Football League's Minnesota Vikings who lives in Minneapolis, was the second-biggest expense account user, at $74,670.
Senser, Cavanaugh, and Heist are Hershey School alumni, and they charged a total of about $9,840 for attendance at homecoming in 2013 and 2014, a perk unavailable to other alums.
A fourth alum, retired Marine Lt. Gen. Richard Zilmer, was a trust board member who lives in Pennsylvania. He did not file expense reports for homecoming costs. Zilmer resigned his trust position amid board infighting in 2015.
Trust board members are asked to attend homecoming and other school events to expose them to school operations, Jarrell said.
Board members with the smallest expenses included Drexel University president John Fry, who was reimbursed $7,942 for travel. Fry even itemized $6 for a phone call and paid the trust back.
David Saltzman, the head of the poverty-fighting Robin Hood Foundation in New York, joined the trust board in January 2015. He was reimbursed $4,699 for travel expenses, the least of any board member. He was on the board for the shortest time. He mostly traveled between New York and Hershey on Amtrak, but also took a limo twice for that trip.
"I took a car service because there were no trains that would get me in early enough to make it to the meeting on time," Saltzman said by email. "I far prefer the train because it is cheaper."

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Embattled Hershey Trust removes top lawyer

Jun 3, 2016 | Philadelphia Inquirer

By Bob Fernandez

The $12 billion Hershey Trust for impoverished children has placed its chief compliance officer and top in-house lawyer, Marc A. Woolley, on administrative leave as the state Attorney General's Office seeks removal of three of the trust's board members.
Woolley vividly described the trust board's infighting in a memo last September that was circulated to board members and later leaked along with other documents to the Office of the Attorney General, leading to a new state investigation of the trust.
Mark Pacella, the chief deputy attorney general who oversees nonprofits, in February requested the removal of the trust's chairwoman, Velma Redmond; former chairman Robert Cavanaugh; and vice chairman Joseph Senser.
Pacella and the trust have continued to negotiate over the attorney general's demands. Redmond, Cavanaugh, and Senser continue in their board positions.
Hershey Trust spokesman Kent Jarrell confirmed on Thursday that Woolley was on leave "while a determination is made about his continued employment." He declined further comment.
David Smith, Woolley's lawyer and chairman of the Schnader Harrison Segal & Lewis law firm in Philadelphia, said Thursday that "Marc's position is that he is deeply committed to the mission of the Hershey Trust and he is disappointed that he has been told to take leave."
The leave took effect last Friday. Smith would not say whether Woolley is being paid while on leave. Woolley, who also served as board secretary, was compensated $453,457 for the tax year ending July 31, 2014, according to the trust's IRS tax records.
The scandal-plagued Hershey Trust pays for and administers the 2,000-student Hershey School for at-risk children.
In the Sept. 30 memo, Woolley transcribed a 47-minute conversation he had with Cavanaugh, who was chairman at the time.
Woolley wrote that Cavanaugh told him he was looking for information that would let him release a "suicide parachute" and "take out" board enemies who had "run a smear campaign against him."
In previous months, Cavanaugh faced a conflict-of-interest investigation over his son's paid summer internship with one of the trust's money managers. Cavanaugh had helped arrange the internship. The Weil Gotshal law firm concluded that Cavanaugh had not violated governance rules and charged the trust $650,000 for the internal probe.
Cavanaugh also claimed to Woolley that two other board members may have engaged in insider trading in Hershey Co. stock, Woolley wrote in the memo. Two outside law firms later concluded that the two board members had not engaged in insider trading. One of those firms spent at least $3 million probing the claims in Woolley's memo.
Woolley was not alone in describing the trust board's dysfunction. On Sept. 23, four board members wrote a letter to then-vice chairman Richard Zilmer, saying that rancor had "paralyzed us as a board."
Zilmer later resigned his board position, as did one of the letter's signers, Drexel University president John Fry.

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Attorneys: 11 former students prepare to sue over digital camera hidden in Hershey School bathroom

May 28, 2016 | Philadelphia Inquirer

By Bob Fernandez

Two attorneys representing 11 former students at the Hershey School for poor children have filed documents in Philadelphia Common Pleas Court initiating lawsuits against the 2,000-student boarding institution for invasion of privacy and other misconduct.
Attorney Tom Kline said on Friday the documents relate to the activities of a fired, gun-toting Hershey School employee Marcus Burns, who hid a camera in the bathroom of one of the boarding facilities for senior male students.
The papers he and Harrisburg attorney Benjamin Andreozzi filed - writs of summons - are precursors to lawsuits with specific allegations. Andreozzi's firm specializes in sexual abuse cases and represented 11 victims of Pennsylvania State University's Jerry Sandusky.
Kline said the allegations will be "specifics relating to events that occurred in a Hershey dormitory." He said he and a team at Kline & Specter have led the investigation and are preparing the suits.
Burns illicitly filmed the boys showering. He pleaded guilty on Sept. 1 to invasion of privacy and possessing three guns on school property. He was sentenced by a Dauphin County judge to a year in prison, court records show, and remains in Dauphin County prison. The Hershey Trust did not have any immediate comment.
The lawsuits add to the trust's legal woes. The $12 billion trust finances and administers the 2,000-student Hershey School for poor children, mostly from Pennsylvania.
The trust's board is facing an investigation by the Pennsylvania Attorney General's Office over compliance with a 2013 deal with Attorney General Kathleen Kane that curbed director compensation and was to refocus the charity on its core educational mission.
Mark Pacella, who oversees nonprofits for the attorney general's office, is investigating whether the trust violated the 2013 agreement by overpaying board members and not attracting education experts to the board. He also has called for the ouster of three long-standing board members, including the chairwoman, vice chairman, and former chairman.
He says Hershey board members should reimburse the trust for improper compensation and reimburse some of the expense for investigating board members.
The Justice Department, meanwhile, is investigating the school for possible violations of the federal Disabilities Act, the second such federal civil rights investigation in four years. The current focus is on whether the school rejects students with physical disabilities and mental-health problems.
On May 23, Dauphin County authorities charged a Hershey School male house parent with improperly touching an 11-year-old girl, the second such case in two years at the school.

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Federal probe said to target Hershey School over disabled students

May 18, 2016 | Philadelphia Inquirer

By Bob Fernandez

An off-campus suicide in 2013 has triggered a federal civil rights probe into the $12 billion Hershey School - the second in four years by the Justice Department - for possibly violating the federal disabilities act, according to a half-dozen people who say they were contacted by the government.
Investigators are looking into whether the scandal-plagued school fails to enroll physically disabled children and expels students with mental-health problems.
Those who have spoken with federal attorneys say they were told not to speak about the case publicly. A seventh person close to the Hershey School confirmed the probe, which has been ongoing for more than a year.
The Americans With Disabilities Act provides that private schools and other public places cannot simply bar those with physical or mental-health disabilities but must make accommodations for them.
The Hershey School released a statement Wednesday saying that "the substantial majority of our students have one or more disabilities - both physical and psychological - and qualify for accommodations" under the law.
The school added that "our number one priority is to ensure we are providing a nurturing environment where every child can overcome the struggles of poverty and reach his or her full potential."
The Hershey School also noted that it has had regular communication with the Justice Department since 2012, "when we began reporting our continuing efforts to serve even more children with disabilities."
In 2012, the school signed a settlement agreement with the department after the government found that it had discriminated against a Philadelphia-area boy with HIV when it rejected him for admission.
As part of that agreement, the school agreed to report a number of measures to the department, such as listing when an HIV student applies to the school.
The Hershey School on Wednesday blamed a "zealous antagonist" - an apparent reference to Ric Fouad, an alum who has been highly critical of the school - for soliciting the Justice Department to pursue claims against it.
"I'm stunned that anyone thinks that I can pressure the Justice Department to investigate anything, let alone a $12 billion charity," said Fouad, a lawyer in private practice in New York City.
Fouad declined to comment on whether he spoke with the Justice Department. He was not among the six sources who told the Inquirer they had spoken with department lawyers.
Justice Department spokeswoman Dena Iverson declined comment.
A team of three Justice Department attorneys in Washington and Pennsylvania is conducting the investigation, sources said.
The federal probe adds to the scandal and legal woes at the fabulously rich 2,000-student Hershey School, which is free to students with family income under $25,000 a year.
Infighting among board members has cost the charity at least $3.6 million in legal fees since last summer and the institution has retained the crisis public relations firm APCO to respond to media inquiries.
In February, the head of the charities section at the Pennsylvania Office of Attorney General, Mark Pacella, called for Hershey Trust Co. board members - who are also directors of the Hershey School - to reimburse the education charity part of the legal costs for the internal probes.
Pacella also has called for the ouster of board chairwoman Velma Redmond, vice chairman Joseph Senser, and former chairman Bob Cavanaugh.
Separately, one of the charity's new directors, Stephanie Bell-Rose, voluntarily quit the Hershey School board in late March, after three months in the position. Drexel University president John Fry also quit, after three years on the board.
Historically, the Hershey School rejected physically disabled children based on restrictions in Milton and Kitty Hershey's 1909 deed that created the orphanage and school for healthy white orphan boys.
The school abandoned the whites-only racial line in the late 1960s after Girard College in Philadelphia opened its doors to blacks, and it ditched the males-only restriction in the mid-1970s as it sought to boost enrollment with girls.
The precipitating tragedy for the current Justice Department investigation was the death of Abbie Bartels, a 13-year-old student suffering from severe depression who hanged herself in her home in Newport, Pa., after she was told she could not return to the Hershey School in June 2013. The school has said it did all it could for her.
Fouad's nonprofit, Protect the Hersheys' Children Inc., brought attention to the case in November 2014 and provided the Justice Department with a letter listing the names of about a dozen additional former students who may have been expelled because of mental-health issues, mostly depression. Fouad also posted the letter on his website, www.protecthersheychildren.org.
As it progressed, the federal probe widened to other compliance issues involving the disabilities act, sources say.
Former houseparents say they observed no wheelchairs on the campus or students with physical disabilities. Impoverished students live on the school's vast property in more than 150 school-owned homes, staffed by houseparents.
The Hershey School owns a controlling interest in the publicly traded chocolate company and Hersheypark.
"I don't know that there was ever a disabled student admitted to [the Hershey School] while we were houseparents," Gary Aichele, who worked with his wife, Wendy, as a houseparent between April 2009 and 2013.
A houseparent who left the school job two years ago said, "I never saw a wheelchair on that campus."
He and his wife signed a non-disparagement agreement with the school and could not be quoted by name. He said he spoke with a Justice Department lawyer over the civil rights investigation.
Curt Decker, executive director of the National Disability Rights Network, a group that provides legal services to people with disabilities, said that federal law trumped private covenants such as the one in the Hersheys' 1909 deed on admitting only healthy children.
"Now, in modern times, we don't consider kids with disabilities as unhealthy," Decker said.
Marc Dubin, executive director of ADA Expertise Consulting and a former senior trial attorney in the Justice Department's Disability Rights Section, said that government investigators would be looking for a "pattern or practice of discrimination" or disability-related discrimination that "raises an issue of general public importance."
Dubin, who is based in Florida, has no special knowledge of the Hershey School case but believed the investigation would take time.
"They are looking at everything they can get their hands on without the power of subpoena," he said.
Going forward, Dubin said, the Justice Department could close the investigation or file a lawsuit to compel compliance.

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How Hershey Trust's chairman found a summer job for his son

May 11, 2016 | Philadelphia Inquirer

By Bob Fernandez

It was a pretty fast summer-job search for the son of the board chairman of the $12 billion Hershey Trust.
And his dad took care of it.
Robert Cavanaugh told the trust's top executive last April that his son Robert might have missed the window to get a summer internship and needed help.
Within days, the executive, Eric Henry, contacted two money-management firms under contract with the charity and emailed the son's resumé.
By the end of the month, both firms had made offers for summer internships. And the son chose JKMilne Asset Management, according to a confidential internal report on the hiring obtained by the Inquirer.
The internship has led to complaints of conflicts of interest at the top levels of the trust and to an internal probe by outside lawyers that cost the education charity $650,000 - 50 times what the son was paid and enough to finance tuition and board for five poor kids at the Hershey School for a year.
One law professor who reviewed the report for the Inquirer called it a "whitewash." He and other experts were surprised at the amount that was spent on the 17-page report: about $38,000 a page.
The Pennsylvania Office of Attorney General has asked Hershey Trust board members to reimburse the charity for the report's costs and is calling for the ouster of three Hershey Trust board members, including Cavanaugh, who is no longer chairman.
The report adds to the perception of endemic conflicts and self-dealing at the chocolate-funded charity that runs the Hershey School for 2,000 impoverished at-risk students, the nation's richest private school.
The confidential report by the law firm Weil, Gotshal & Manges is dated last Aug. 27, and it cleared then-board chairman Cavanaugh and Hershey Trust Co. CEO Henry of any wrongdoing.
"We do not believe that undue influence was applied even though the request came from the chairman to Mr. Henry and even though Mr. Henry identified to Mr. [John] Milne that the student seeking the internship was the chairman's son and [the Hershey Trust] is currently Milne's largest client," the legal report said.
Milne, the asset manager, "followed his typical hiring process, although because of the press of business he initiated it later in the year than he usually does," the law firm report said.
Hershey Trust spokesman Kent Jarrell declined comment for Cavanaugh, saying in a statement: "The board appropriately retained Weil, Gotshal & Manges to conduct an independent legal review of matters related to a potential conflict of interest concerning a board member. The law firm concluded the board member's conduct complied with the board's governance policies and with a 2013 agreement with the Office of the Pennsylvania Attorney General.
"The law firm recommended that the board should continue its effort to overhaul and clarify its governance documents to make them concise, consistent and easy to understand and use," Jarrell said.
The Hershey Trust board "expects to properly resolve" the issues raised by the Attorney General's Office, Jarrell said, including its request that the charity's directors pay the cost of the Weil Gotshal report.
Legal experts say that even the perception of a conflict can be a problem at a scandal-plagued institution such as the Hershey Trust, which was most recently investigated by the attorney general for the purchase of a $12 million luxury golf course with Hershey School funds and for soaring board compensation.
"It was designed to be a whitewash and it is a whitewash," Stewart E. Sterk, professor at the Benjamin N. Cardozo School of Law in New York, said of the report. "It's disingenuous to the extreme. The report takes at face value anything that the trust says.
"What is particularly absurd was that nobody else applied for the job but the report says [the internship] was available to the general public," Sterk said.
Vernetta Walker, chief governance officer at BoardSource, a nonprofit advocate for strengthening charitable governance, said of the internship: "What you are left with is the perception that somebody called in a favor. I'm not saying that's what happened."
Walker added that she was "blown away by the $650,000. My ears perk up when I hear $650,000. What was going on?"
Eleanor Myers, emeritus law professor at Temple University's Beasley School of Law, said, "A lot of the problem is how this looks."
The important thing, she said, "is to recognize when you are in a conflict and to make timely disclosure and to have the transaction blessed by those whose judgment is not affected by the conflict."
According to the Weil Gotshal timeline, Cavanaugh's hunt for an internship for Robert, then a junior at Bucknell University, began April 13, 2015, when he spoke with Henry. Henry was the chief executive officer and the chief investment officer at the state-chartered Hershey Trust Co. bank.
The Hershey Trust Co. acts as the fiduciary of the Hershey School's $12 billion in assets under a charitable education program conceived by Milton and Kitty Hershey more than 100 years ago.
The Hershey Trust Co. functions like the endowment-management arm of a major university. The bank board, chaired by Cavanaugh in 2015, also serves as the board of the Hershey School.
Cavanaugh was paid $332,666 as a director on two Hershey-related boards, the bank and the chocolate company, for the year ended July 31, 2014, IRS documents show. The Hershey Trust Co. paid Henry $783,286 over the same period.
According to Weil Gotshal, most students had obtained summer internships by January or February, so Henry was seeking an internship well past the time they were typically offered.
Henry first emailed Legato Capital Management L.L.C. in San Francisco, which managed $25 million for the Hershey Trust, as he looked for internships. Legato's top executive responded, asking for the resumé of Cavanaugh's son.
Henry also emailed John K. Milne, the chief executive officer of the firm that managed $584 million in Hershey charity assets, with the resumé, mentioning in the email that it was "our board chair's son."
Milne could not be reached for comment Tuesday.
Milne emailed Cavanaugh's son and spoke with him on the phone. The Milne firm had a summer intern program and had posted available positions at Carnegie Mellon University in Pittsburgh and Duke University in Durham, N.C., on March 27 - evidence, Weil Gotshal said, that the internship was available to the general public. Weil Gotshal said that nobody had applied for the internships at that point.
Milne offered Cavanaugh's son an internship April 23 - 10 days after Cavanaugh mentioned it to Henry - and he accepted the offer May 5. He was paid about $13,000 for 10 weeks.
The elder Cavanaugh attended five Hershey Trust board meetings between April 16 and early June but did not mention that his son had obtained an internship with a charity-connected asset manager, the Weil Gotshal report said in a footnote.
On June 7, Cavanaugh emailed a Hershey Trust vice chairman, retired Marine Lt. Gen. Richard Zilmer, officially telling him of his son's internship, the report said.
"Several months ago," Cavanaugh said in the Zilmer email, "my son became aware of a summer internship program being offered by JKMilne Asset Management. This internship opportunity was posted online at, among other places, Duke."
Weil Gotshal noted that Cavanaugh didn't mention asking for Henry's help in the Zilmer email. Cavanaugh told the Weil Gotshal attorneys that he did not want "any adverse impact" on Henry.
"While we found Mr. Cavanaugh's explanations to be credible," the report said, "we believe that he should have described Mr. Henry's role so that all the circumstances were clearly presented."

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Hershey Trust spends $3.6 million investigating itself

May 5, 2016 | Philadelphia Inquirer

By Bob Fernandez

A splintered Hershey Trust board that controls one of the nation's richest charities has spent $3.6 million on legal fees to investigate claims of possible wrongdoing by its own members, according to an internal letter from the board's chief compliance officer, Marc A. Woolley, and now-fired executive John Estey.
In the last year, the board hired lawyers to probe whether two members engaged in insider trading of Hershey Co. stock. They did not, Zuckerman Spaeder L.L.C. and others found at a cost of $3 million, the letter said.
Another firm investigated whether former chairman Robert Cavanaugh was within bounds to have his son hired as an intern last summer for one of the trust's investment counselors.
Weil Gotshal & Manges cleared Cavanaugh of any impropriety and charged the trust $650,000, according to the April 20 letter.
The letter to the board reveals a toxic environment at the highest level of a charity that oversees the 2,000-student Hershey School for at-risk children.
The charity owns a controlling interest in the Hershey chocolate company, whose brands include Reese's peanut butter cups and whose stock dividends help finance the Hershey School.
Hershey Co. spokeswoman Leigh Horner said Wednesday that the publicly traded chocolate company knew of the insider-trading allegations and retained WilmerHale partners Robert Mueller 3rd, a former FBI director, and William R. McLucas, former director of enforcement for the Securities and Exchange Commission, to investigate them in 2015. "There was nothing there," Horner said.
Hershey Trust spokesman Kent Jarrell declined to disclose itemized legal fees Wednesday, saying they would be presented in regulatory filings.
Woolley, who is still employed by the Hershey Trust, declined comment on Wednesday and referred questions to a trust spokesman.
Estey, a Pennsylvania Democratic insider who was executive vice president for administration of the Hershey Trust Co., signed the April 20 letter with Woolley.
Last Friday, the Hershey board fired Estey after federal prosecutors disclosed that he had been charged with wire fraud. Caught in an FBI sting in 2011, Estey has admitted pocketing $13,000 that was meant to pay for lobbying Pennsylvania lawmakers. The wrongdoing is unrelated to the Hershey charity.
Jarrell, the trust spokesman, said: "The boards have reviewed this letter that is from what can be described as disgruntled employees, one of whom wrote this letter after he had already signed an agreement to plead guilty to wire fraud without disclosing that to the board."
The state-chartered Hershey Trust Co. manages $12 billion in charitable assets, and its board members serve as the board of managers for the school for impoverished students, a complex charitable organization conceived in the early 20th century by Milton Hershey and his wife, Kitty.
Mark Pacella, the chief deputy attorney general who oversees charities for the Pennsylvania Attorney General's Office, declined to comment on the internal April 20 letter.
But he said that the Attorney General's Office was "committed to whatever actions are necessary to ensure that the administration of the Milton Hershey School Trust complies with applicable law."
That could include "petitioning the court to impose whatever appropriate relief may be necessary to achieve that end," he said.
On Tuesday, the Inquirer reported that Pacella was seeking the ouster by this summer of three long-standing Hershey board members, including chairwoman Velma Redmond. The others are former chairman Cavanaugh and vice chairman Joseph Senser.
Among Pacella's concerns is that the 10-member board has received lucrative compensation that flouts the rules it agreed to in 2013 to settle with Attorney General Kathleen Kane an investigation into the purchase of a $12 million luxury golf course and other financial excesses.
Cavanaugh, a Hershey School graduate, faced a Hershey Trust board inquiry into the hiring of his son for a summer internship at a Florida investment firm retained by the charity.
Weil Gotshal "concluded that no undue influence had been applied, but recommended that the board adopt formal pre-clearance procedures for related party transactions," the Woolley/Estey letter says.
Pacella, the attorney general official, wants Hershey Trust board members to reimburse the charity for the investigation.
Woolley and Estey's letter claimed that it was hard to do their jobs providing legal advice at the highest level of the charity.
"Because the board has effectively eliminated our authority to ensure that the [Hershey Trust Co.] is in regulatory compliance, and given that we have been threatened with retaliation for raising important legal and governance issues, we reserve the right to take such actions as we believe may be necessary as officers of [the Hershey Trust Co.] to protect the interest of [the Hershey Trust Co.]," they wrote in the letter.
Hershey Trust spokesman Jarrell said, "The boards believe they continue to be in regulatory compliance and continue to have appropriate discussions with the Attorney General's Office."

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Business AG wants to remove 3 leaders of Hershey Trust

May 3, 2016 | Philadelphia Inquirer

By Bob Fernandez

In a sign of the continuing chaos at the top of the $12 billion Hershey charity, the Pennsylvania Attorney General's Office is seeking the resignation of three long-standing board members at the Hershey School for poor children, according to a letter from the office obtained by the Inquirer.
The resignations would amount to an overhaul of the 10-member board that runs one of the nation's richest charities.
The letter asks the Hershey Trust directors to reduce board compensation, which it said exceeds its own rules, and asks members to personally bear the cost related to an internal conflict-of-interest investigation.
The office also expressed concerns about "apparent violations" of a reform agreement reached between the attorney general and the Hershey charity in 2013 over the purchase of a luxury golf course with school funds.
Spokesmen for the Attorney General's Office and the Hershey Trust confirmed the authenticity of the Feb. 8 letter, which reveals turmoil at the charity's highest level.
The Hershey School, the sole beneficiary of the trust's $12 billion in assets, enrolls 2,000 impoverished students, mostly from Pennsylvania. The charity owns HersheyPark as well as a controlling interest in the Hershey chocolate-manufacturing company.
Democratic insider John Estey, a top official at the Hershey Trust Co., which manages the charity's finances, was charged on Friday by federal prosecutors with pocketing $13,000 that was to be used for lobbying state lawmakers as part of a sting.
The Hershey Trust Co. board fired Estey on Friday evening after learning of the charge, which is unrelated to the charity.
Hershey Trust spokesman Kent Jarrell said in a statement that the group's boards - one to manage finances and one to administer the school - "have a long history of voluntarily and constructively working with" the attorney general and "are fully cooperating." He said the Hershey charity expects to "appropriately resolve outstanding concerns."
Chuck Ardo, the spokesman for the Attorney General's Office, said Monday that "we have not heard a satisfactory response from" the Hershey Trust.
Ardo called the letter "a continuation of our original investigation and terms under which we agreed to settle" a two-year probe into soaring board compensation and the $12 million purchase of the Wren Dale golf course.
Then-Attorney General Tom Corbett launched the investigation into Wren Dale, which the charity later closed as a money-loser, after its highly irregular purchase was disclosed in the Inquirer as Corbett ran for governor.
The Hershey charity agreed to a laundry list of changes. But Mark Pacella, the chief deputy attorney general who oversees charitable organizations, wrote that his agency had "serious concerns regarding the apparent violations of the 2013 agreement."
Before the 2013 agreement, there was no limit on board compensation. The 2013 agreement limited compensation to a base pay of $30,000 a year, but also includes more pay for attending meetings and heading committees.
Pacella seeks a "reduction in board compensation to the parameters set forth in the 2013 agreement" and the "reimbursement of all excess compensation." The most recent pay has not been disclosed in tax filings with the IRS.
Pacella also alleges the Hershey board's apparent "failure to exercise its best efforts in a timely manner to secure new board members" with experience in early childhood education and working with at-risk children.
Pacella asked about the resignations of board members John Fry, the president of Drexel University, earlier this year and Hershey alumnus Richard Zilmer in 2015.
Fry and Zilmer were considered newer board members and not connected to the purchase of the golf course and financial excesses of the last decade.
Hershey spokesman Jarrell confirmed Monday that a third board member, Stephanie Bell-Rose, resigned after serving only three months in Hershey, Jan. 1 to March 28.
Bell-Rose is a senior managing director of TIAA-CREF Financial Services, which manages teacher retirement funds, and a trustee of the John S. and James L. Knight Foundation.
Bell-Rose told the charity that the time commitment to Hershey was "much more than she had anticipated and would interfere with her job responsibilities," according to a Hershey statement.
Pacella said the Attorney General's Office was seeking, by July 31, the resignation of board members who have served more than 10 years.
The office did not identify the members. But the charity's website lists three members who have served more than 10 years as Velma Redmond, the current chairwoman, who joined in 2003; and Joseph Senser, the vice chairman, who joined in 2001.
The third long-standing board member is Robert Cavanaugh, a former chairman who joined in 2001. The Hershey boards investigated the summer employment of Cavanaugh's son with "one of the trust's investment management firms," the Pacella letter says. The Attorney General's Office wants the directors to personally bear the cost of that inquiry.
In its latest filing with the IRS for the year ending July 31, 2014, the Hershey charity disclosed that Redmond earned $97,500 in directors' compensation, Senser earned $204,500, and Cavanaugh earned $332,500. The money could have come from multiple Hershey-related boards and may not be subject to the 2013 agreement.
Ric Fouad, a Hershey School alumnus and a long-term activist for reforms at the school, said on Monday that he was "encouraged by this sign that the attorney general has awakened to the gravity of Hershey's problems." But he said a "complete and immediate takeover of this charity's board" is needed.

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Other Philadelphia Inquirer Coverage

Commentary: With Estey sting, more shame on Harrisburg - and the FBI

May 12, 2016 | Philadelphia Inquirer

By Bruce S. Marks

We have yet another scandal in Harrisburg. This one not only uncovered a corrupt lobbyist but exposes the FBI, which began a curious "pay to play" sting operation when Republicans controlled Pennsylvania state government in 2009. So far, though, only a Democratic power broker, who received a financially lucrative deal and apparently leniency to wear a wire, has been snared.
Based on the known facts, the sting operation appears to be a classic example of the federal government threatening our liberties and making things worse, not better.
The Inquirer reported Sunday that in 2009, the FBI created a fake company - Textbook Bio-Solutions, with a fake website, business plan, and executives - to pay real money to real Harrisburg lobbyists to pass laws requiring schools to use certified recycling centers to dispose of unwanted textbooks. On its face, it sounded like a meritorious pro-environmental proposal. The FBI tasked its agents to engage a lobbying firm with long-standing connections to Republican legislators.
From all reports, the Republican lobbyists did their job representing the FBI-fabricated company, and senators supported bipartisan legislation based on sound public policy. The result - after the FBI spent $135,000 on lobbying fees - was a bill that the Senate passed unanimously.
As part of the process, according to court documents, Democratic operative John H. Estey, former chief of staff to Gov. Ed Rendell, was given $20,000 by undercover agents that he promised to pass along as campaign contributions. Estey kept $13,000 of that money, according to court records, with the rest going to undisclosed lawmakers, violating state laws that ban corporate campaign contributions and false reporting.
Once confronted by federal officials in 2011, Estey agreed to wear a wire - apparently for years - as part of a sting operation that allows recording of private conversations without a court-approved search warrant. Meanwhile, the criminal allegations against Estey were concealed from the Hershey Trust Co., where he was a top official, allowing him to continue to earn more than $700,000 annually. When his part in the sting was disclosed last month, he was immediately fired.
The U.S. Supreme Court has long decried government attempts to entrap citizens.
In 1932, Sorrels v. United States held that the "duties of the officers of the law are to prevent, not to punish crime. It is not their duty to incite and create crime for the sole purpose of prosecuting and punishing. . . . t is unconscionable, contrary to public policy, and to the established law of the land to punish a man for the commission of an offense of the like of which he had never been guilty, either in thought or in deed, and evidently never would have been guilty of if the officers of the law had not inspired, incited, persuaded, and lured him to attempt to commit it."
In 1992, in Jacobson v. United States, the Supreme Court repeated, "In their zeal to enforce the law, however, government agents may not originate a criminal design, implant in an innocent person's mind the disposition to commit a criminal act, and then induce commission of the crime so that the government may prosecute."
The Estey case differs from that of Democratic former state Treasurer Rob McCord, who is awaiting sentencing on attempted-extortion charges. He reportedly wore a wire for a short period after being confronted with the evidence against him and then resigned from his office. Estey kept his Hershey job for years, which would not have happened if his deal had been disclosed sooner. The FBI thus created a perverse incentive by encouraging Estey to entrap colleagues in order to earn his lucre.
Ironically, the sting operation did not capture its likely intended targets - Republican legislators and lobbyists who controlled Harrisburg under Republican Gov. Tom Corbett from 2009 through early 2015. Instead - so far - it has only caught Democratic insider Estey.
Regardless of who was caught, the case reveals a fundamentally flawed approach to criminal justice. Under the dubious guise of investigating "pay to play" in Harrisburg, the FBI helped provide "pay" - more than $700,000 annually to Estey - to "play" him into recording fellow Pennsylvanians.
Public corruption is rotten. But using Estey to spy on legislators and lobbyists, and providing him with a vast incentive to manufacture more corruption, is even worse. These actions threaten our basic freedoms, including the ability to conduct private conversations without government surveillance, absent court-approved search warrants.
Estey pleaded guilty Tuesday to one count of wire fraud. The federal judge should not only require him to return his salary to the Hershey Trust, but should also admonish the Department of Justice not to provide financial incentives that risk informants invading our privacy, imperiling the independence of the General Assembly and engaging in entrapment.

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Estey wore wire after sting, sources say

May 8, 2016 | Philadelphia Inquirer

By Craig R. McCoy, Angela Couloumbis, Mark Fazlollah

After being snagged in a FBI sting in 2011, John H. Estey, the former top aide to Gov. Ed Rendell, agreed to secretly record his conversations with political figures, according to people familiar with Estey's role.
Whom he recorded and how long he worked as a cooperating witness for federal investigators are unclear. But the sources say it could have been years.
Estey, a 53-year-old Ardmore lawyer, is scheduled to plead guilty Tuesday to a single count of wire fraud, according to court documents. Neither he nor federal prosecutors have discussed his crime or cooperation beyond what was laid out in a plea agreement filed April 29.
The Inquirer has reported that former State Treasurer Rob McCord also wore such a listening device to assist federal prosecutors, doing so for a few weeks between when McCord first was confronted with the evidence against him and his sudden resignation from office in January 2015.
McCord is awaiting sentencing on attempted-extortion charges. Prosecutors say he threatened to retaliate against businesses that didn't give him sufficient campaign donations for his 2014 gubernatorial bid.
While federal investigators cannot wiretap phone lines without probable cause and a judge's approval, they need no advance approval to rig a cooperator with a body recorder. That makes them highly useful to investigators, especially to kick off a line of inquiry.
Estey was a deputy chief of staff in Rendell's mayoral office and followed Rendell to the governor's office in 2003. Estey left the office in 2007 but stayed on as a special adviser for 10 months.
After working as a lawyer and a lobbyist with Ballard Spahr law firm in Philadelphia, he became a top executive with the Hershey Trust in 2011. Hershey fired Estey after news broke of his plea deal.
Estey is due to appear Tuesday before U.S. District Judge John E. Jones III in Harrisburg. Under federal sentencing guidelines, his crime - especially given his cooperation and the relatively low amount of money taken - calls for him to receive a sentence ranging from probation to six months in prison.
Those guidelines are only advisory, however, and Estey's public profile could weigh against him when he is sentenced at some future date, after the extent of his cooperation has become clear.

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Few details available in Estey bombshell

May 1, 2016 | Philadelphia Inquirer

By Craig R. McCoy, Mark Fazlollah, and Angela Couloumbis

In the world of Pennsylvania politics, it would have been tough to find someone more deeply connected than John Estey.
The former chief of staff to Gov. Ed Rendell and a onetime top lawyer, Estey spent the last two decades moving in and out of many circles, Democratic and Republican: Philadelphia City Hall. The state Capitol. The Delaware River Port Authority. A $12 billion charity.
Unbeknownst to all but the FBI, he also apparently had another title: federal cooperator.
Friday's disclosure that he had been snared in a corruption sting that started seven years ago was poised to be even more explosive than last year's arrest of Pennsylvania Treasurer Rob McCord for extorting political donors.
Both secretly cooperated with agents, according to sources. McCord recorded conversations for the FBI.
What makes Estey's case more intriguing are the few details - and the lack of many others - unveiled in the plea documents that he signed.
Prosecutors said he was targeted as part of a probe into lobbying in the legislature, and the charges refer to at least three lawmakers Estey offered to influence with donations.
But the documents don't identify the legislators, the FBI-created fake company Estey thought he was lobbying for, or what the firm's executives pretended to be seeking. They say agents gave Estey $20,000 for illegal campaign contributions but that he kept most of it for himself.
Perhaps most significantly, the sting has been under wraps for nearly five years. Since then, Estey continued to move in high-powered circles statewide.
"This is a major deal, to have two cooperators at this level," said Jeff Lindy, a veteran Philadelphia defense lawyer and former prosecutor, who has no connection to the case.
The agreement Estey signed says the 53-year-old Ardmore resident will plead guilty to a single count of wire fraud. It also noted prosecutors could ask his sentencing judge for leniency based on any cooperation.
Through his lawyer, Ronald H. Levine, Estey last week apologized for his "mistakes."
Beyond that, he would not discuss the case.
Though never in the limelight like his onetime boss or prominent Rendell chief of staff David L. Cohen, Estey rose smoothly in Pennsylvania politics.
A Philadelphia native - his late father was chairman of what is now the Montgomery McCracken law firm - he served as Mayor Rendell's deputy chief of staff in the late 1990s.
When Rendell became governor in 2003, Estey landed the highest-ranking job in his administration, helping to negotiate deal after deal with legislators on everything from the budget to legalizing gambling in Pennsylvania.
Rendell declined comment last week, but Kevin Feeley, another former adviser, said he and others who knew Estey were confounded by his downfall.
Feeley described Estey as smart, funny, and charming. "In my dealings with John, he has always been a very principled person," Feeley said. "John was the guy in the room who would say, 'You can't do that,' or 'You have to think about that.'"
Estey left the governor's office after Rendell won a second term, and returned to the Philadelphia law firm of Ballard Spahr, leading a new team representing corporate clients before the same kinds of agencies that he once dealt with as an administration official.
In the private sector, sources say, Estey was among the players who drew FBI scrutiny in a 2010 probe of a botched deal to develop a new Family Court building in Philadelphia. At Ballard, Estey was hired by the Philadelphia court system to lobby the governor - his former boss - to release millions of state dollars for the structure.
The project fell apart after the Inquirer revealed another Philadelphia lawyer hired by the courts had ended up as a partner with the project developer. No charges resulted from the FBI inquiry.
Around the same time, Estey fell into the sting, according to court filings in his case.
Estey was a newly registered lobbyist for Ballard in 2009, they said, when he began representing an out-of-state firm. In reality, the business was an FBI front, and its executives were undercover agents.
In May 2011, the documents show, he agreed to funnel firm money in campaign donations to Pennsylvania legislators. State law sets no limits on donations from individuals, but corporations are barred from giving campaign contributions.
Estey took $20,000 from the firm - money he promised to split evenly between three lawmakers and one of the four leadership caucuses in the legislature. The documents don't name any of the intended recipients, but they do say Estey admitted keeping $13,000 of the money and lying to the firm about it.
The court filings also don't indicate when he started cooperating with the FBI.
Months after the 2011 sting, Estey amended a financial disclosure form he was required to file as an appointed public official.
He added one item, acknowledging he had earned money from a new for-profit business called Eleven Twelve Partners that shared an address with his Ardmore home.
The form, and its incorporation papers, offer no information about the partnership's purpose, its source of income, or why it was not listed in the original filing.
Late in 2011, Estey was named acting general counsel for the Hershey Trust. He took the job at a perilous time for the trust, overseer of the Milton Hershey School and beneficiary of the giant chocolate business.
It was facing an investigation by the state Attorney General's Office into its $12 million purchase of a luxury golf course, among other issues. In hiring Estey, the trust, long known for its strong GOP ties, turned to a Democrat to deal with a Democrat: Attorney General Kathleen Kane.
In the end, Kane cleared the trust of any misconduct, but negotiated reforms, including a cut in pay for trustees.
Estey stayed on at Hershey - rising to serve for a time as interim school president and once earning $736,000 in a year. But the federal investigation was still percolating, and he kept his hand in politics.
In September 2013, Estey created a political action committee, the Enterprise Fund, records show. It is unclear if he did so on his own or at the urging of a partner, such as the FBI.
According to political insiders who spoke with Estey about the PAC, Estey promoted the fund as a vehicle by which Republican donors who wanted to keep a low profile could give campaign donations to Democrats.
It didn't operate like a traditional PAC.
Public records show the Enterprise Fund raised $125,000 over four days in late 2013, and months later gave it all to just one candidate: McCord, the Democrat and state treasurer who wanted to be governor, and ultimately became an FBI target himself. The donation even landed at an odd time - May 21, 2014, the day after McCord lost the primary to Gov. Tom Wolf.
Records show that $100,000 of the money came from one donor, Ross Nese, the owner of a sizable Pittsburgh nursing-home chain.
The remaining $25,000 came from Vahan and Danielle Gureghian. Vahan Gureghian is a Montgomery County lawyer and charter-school magnate known as one of the state's biggest GOP donors.
A spokesman for Gureghian, A. Bruce Crawley, said he would have no comment. Nese could not be reached for comment.
In late 2014, federal prosecutors subpoenaed records about the Estey PAC. Today, it is dormant.
After being confronted, sources said, McCord secretly taped conversations for the FBI. Despite pleading guilty a year ago, he is still waiting to be sentenced.
On Friday, prosecutors made public a series of court documents laying out Estey's misconduct. They included a statement, signed by Estey, his lawyer, and prosecutors, in which he admitted that he had "acted with intent to defraud."
Hours later, the Hershey Trust fired him.
Ric Fouad, a Hershey School alumnus and leading critic of the school, said Hershey should never have appointed Estey to the educational post.
"From day one, John Estey had no qualifications for serving as the interim president of a child-welfare charity other than his political connections," he said.
Estey remained in a leadership position of the billion-dollar trust for years after being caught.
On Friday, the organization took pains to point out that it "had no prior knowledge that Estey was a target of a federal investigation."

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Lawyer: Political player to admit wire fraud

Apr 30, 2016 | Philadelphia Inquirer

By Craig R. McCoy, Mark Fazlollah, and Angela Couloumbis,

John H. Estey, a former top aide to Gov. Ed Rendell and a prominent player in city and state politics, will plead guilty to wire fraud, his lawyer and federal prosecutors said Friday, the latest turn in a pay-to-play corruption probe that already snared Pennsylvania's former treasurer.
According to people familiar with the case, Estey has been secretly cooperating with investigators, possibly for years.
He was caught in 2011 in an FBI sting by agents posing as businessmen seeking his influence with state legislators, according to court filings in Harrisburg. They gave him $20,000 to pass to lawmakers as illegal campaign contributions, but he secretly kept two-thirds of the money.
The investigation was part of a wider probe "of lobbying in the Pennsylvania General Assembly," prosecutors said. They provided few details and did not name any legislators or other subjects.
Estey could not be reached for comment. His Philadelphia lawyer, Ronald H. Levine, said his client was "sorry about the mistakes he has made," but declined to discuss the probe or say if Estey was cooperating.
Until Friday, the 53-year-old Philadelphia native and Democrat had been a top executive with the Hershey Trust Co., where he earned $738,000 yearly.
After his fraud case became public, the trust announced that its board had fired him. It also said it was unaware of the investigation and noted that his wrongdoing was not related to his work at Hershey.
The news of the plea comes a year after another prominent Democrat, former state Treasurer Rob McCord, admitted extorting potential donors for his gubernatorial campaign.
On Thursday, the Inquirer and the Daily News reported that McCord also was a federal cooperator and had secretly recorded conversations for the FBI before his case became public. Agents taped more than 2,000 of his phone conversations, sources said.
McCord's sentencing has been delayed for nearly a year - a sign that he still could be asked to testify or cooperate in other ways.
His case, like Estey's, is being handled by the U.S. Attorney's Office for the Middle District of Pennsylvania, based in Harrisburg. FBI agents there are supervised by the bureau's Philadelphia division.
Estey has had a high profile in both cities.
In the late 1990s, he served as deputy chief of staff to then-Philadelphia Mayor Rendell and later became Rendell's gubernatorial chief of staff. Rendell declined to comment Friday.
Estey also has served as chairman of the Delaware River Port Authority, the Philadelphia Regional Port Authority, and the Independence Visitor Center.
According to the court filings, which include an agreement signed by Estey, the FBI set up its phony business to "investigate allegations of public corruption in Pennsylvania."
The documents repeatedly call it "the undercover company" or "the UCC" but do not identify the company's name or purpose, except to say it was an "out-of-state business."
In 2008, Estey left the Rendell administration and returned to private practice at the Ballard Spahr law firm in Philadelphia. That same year, he registered as a lobbyist for the firm, state records show.
In October 2009, he began representing the company executives, not knowing they were undercover FBI agents, court records show.
Estey allegedly told them about a state lawmaker - unnamed in the filings - who could draft and introduce legislation to help their business.
In early 2011, the undercover agents gave him $20,000 that Estey said he would pass along as campaign contributions in his name, circumventing state laws that ban corporate gifts and the use of lobbyists as "pass-throughs."
Estey told the business executives the money would be split four ways: $5,000 each to the campaign funds of three lawmakers, and $5,000 to a "particular leadership caucus."
None is identified in the filings.
In June 2011, Estey told an FBI agent that he had split up the money as promised and donated it.
He actually kept $13,000 for himself, authorities say. Where the other $7,000 went is unclear. Prosecutors didn't disclose that in the plea documents.
Campaign finance records show that Estey made several contributions in 2011 to Philadelphia Democratic lawmakers. The majority of them were made before he banked the $20,000 by undercover agents that May. But in July, Estey made a $1,000 donation to Sen. Vincent Hughes, the ranking Democrat on the Appropriations Committee, the records show.
Hughes did not return calls seeking comment.
Later in 2011, Estey left Ballard Spahr to become acting general counsel, acting corporate secretary, and acting chief compliance office at the Hershey Trust Co.
His case is being prosecuted by Assistant U.S. Attorneys Michael A. Consiglio, Christy Fawcett, and William S. Hauser.
Dawn L. Mayko, a spokeswoman for their office, said prosecutors would not discuss the case.

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Milton Hershey School

Hershey, Pa., Is the Town That Chocolate Built

Aug 15, 2016 | Wall Street Journal

By Annie Gasparro

This town runs on chocolate.
From the roller coasters at Hershey Park to the butterfly conservatory at Hershey Gardens, Hershey, Pa., was literally built on the generosity of its founder, the iconic chocolatier Milton S. Hershey.
Seven decades after his death at the age of 88, the maker of Hershey’s Kisses and Reese’s Peanut Butter Cups still employs 4,500 people in a close-knit community surrounded by farmland. The related entertainment company draws 8,000 more full- and part-time workers into the town of 14,200 people.
No wonder, then, that Hershey residents fret the tap might run dry if Hershey Co. is sold or merges with a suitor such as Mondelez International Inc., the Oreo cookie maker that offered on June 30 to buy Hershey for $23 billion. Hershey’s board rejected the bid.
“Who knows what happens to all that if the company is sold? That’s what worries people,” said Ken Rawley, who grew up in Hershey, where his father was a sales and marketing executive at the company. Mr. Rawley has since moved to New York and works for a boat company.
Hershey is a holdout from a bygone American era, when some 2,000 towns sprang up to serve one particular coal mine, textile factory or slaughterhouse. Many have faded as factories moved overseas and technological advancements led to job cuts.
The coal-mining town of Lynch. Ky., built by U.S. Steel in 1917, saw its population start to plummet in the 1950s from a peak of 10,000 as the industry mechanized. As of the 2010 U.S. census, there were 747 people left in Lynch. Archer Daniels Midland Co. recently left its longtime home of Decatur, Ill. for trendier pastures in Chicago, hurting fancier restaurants and hotels that catered to the commodities giant’s executives and white-collar visitors.
Belgium-based InBev purchased Anheuser Busch in 2008. The beer giant had cut some 2,000 jobs in the St. Louis area—AB’s headquarters—by the end of 2011, and started a yearslong squabble over who would operate a beloved local nature reserve. St. Louis-area residents face another potential blow with Bayer AG’s percolating bid for seed giant Monsanto Co.—a major employer and charitable donor that could depart if it gets acquired.
The same fate hasn’t befallen Hershey, where Kisses-shaped lamps burn bright above the downtown intersection of Chocolate and Cocoa Avenues. “Hershey seems as prosperous and welcoming as ever,” said Hardy Green, author of “The Company Town: The Industrial Edens and Satanic Mills That Shaped the American Economy.” He added, “People in the town of Hershey are reluctant to say anything bad about the company because they’re afraid of what will happen.”
Hershey’s resilience is due largely to the unusual strength of Hershey Trust Co., a secretive body of about 10 members that oversees a $12 billion endowment, charitable and entertainment institutions across Hershey, and 81% of the chocolate maker’s voting shares.
Milton Hershey founded the trust over a century ago, mainly to look after the Milton Hershey School for some 2,000 underprivileged children. It still does that, but today the trust also owns a resort and spa, an amusement park and a real-estate company in town.
The trust enjoys an unusual relationship with state leaders. Pennsylvania law requires the state’s attorney general to oversee the trust’s major investment decisions, including a possible sale. Democrat Josh Shapiro and Republican John Rafferty are running for the open state attorney-general seat, and Hershey has become a campaign issue. “I will vigorously protect Hershey’s continued success in Pennsylvania,” Mr. Shapiro said.
The latest offer from Mondelez, formerly Kraft Foods Inc., included concessions to call the combined company Hershey and make the town its chocolate headquarters. That hasn’t stifled concerns in Hershey that jobs would leave.
Mondelez told worried Britons that its acquisition of Cadbury in 2010 would preserve a local factory that had been slated for closure. After inking the deal, Mondelez closed the factory after all.
Hershey Co. has also disappointed its citizenry in the past. A few years ago, Hershey closed its original factory, built under smokestacks that still proclaim the company’s name, indicating to visitors that they’ve come upon “the sweetest place on earth.” A more mechanized facility nearby employs 500 fewer people than the old plant.
John Foley, a Milton Hershey School alumnus who sits on the town’s board of supervisors, said despite downsizing, Hershey residents still see the company as their “golden goose.”
“They should never sell it. Even if the headquarters stayed here, we’d lose our power,” he said.
Brad Reese, the grandson of the creator of Reese’s Peanut Butter Cups, which Hershey bought in 1963, spent his early years in what he calls “this very insular town.” He swam in the pool at the Hershey-built community center, and drank milk from the Hershey-owned dairy.
“It’s a honey pot,” said Mr. Reese, “the hand that feeds.”

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Back-Stabbing and Threats of a ‘Suicide Parachute’ at Hershey

Jul 30, 2016 | New York Times

By David Segal

One toasty afternoon in mid-July, four 10-year-old boys gave a tour of their home at the Milton Hershey School, a boarding school for at-risk children and one of many gifts bequeathed by the chocolate magnate to the community that bears his name.
In the kitchen, a plate of brownies sat unattended. The boys yearned and stared — but kept their hands to themselves. This seemed so improbable that someone asked, Why aren’t you guys grabbing dessert?
“We’re mature enough not to take stuff without asking,” said Jayce, a blond-haired boy with a dimpled chin. “But if we were to ask,” he added, raising a hopeful forefinger, “we would ask like this: ‘May I please take a brownie?’”
Given this show of discipline, it may come as a surprise to learn that in recent years, some serious behavioral issues have convulsed the Milton Hershey School. But the problem isn’t the students. The problem is the adults in charge.
Thanks to a historic gift by M.H.S.’s founder, the Hershey Trust Company has an endowment of $12.3 billion and an ownership stake in Hershey Company, giving it control of the candy dynasty behind Kit Kat, Reese’s and Hershey’s Kisses, to name a few.
With Hershey now the subject of a $23 billion takeover bid, the trust is enduring one of its periodic turns in the klieg lights, and the timing is hardly ideal. A leaked internal memo has revealed back-stabbing, allegations of insider trading and the threat of something called a “suicide parachute.”
All of this is happening as a dubious deal to buy a golf course continues to reverberate and as critics charge that members of the trust’s board are more interested in earning hundreds of thousands of dollars on Hershey-related boards than in helping needy children.
In the last 12 months the trust has spent more than $4 million on lawyers to investigate charges of misconduct that board members have lodged against one another. In one instance, Robert F. Cavanaugh, then the board’s chairman, was accused of improperly securing a summer job for his son with JKMilne Asset Management, one of the trust’s outside investment companies.
In a sharp escalation, Mr. Cavanaugh, an M.H.S. alumnus who worked in real estate finance, accused two board members of trading Hershey stock on privileged information, which is basically the corporate version of crying “Murder!”
After a small fortune in billable hours, all three board members were given a clean bill of ethical health. But this group operated in what was apparently a toxic atmosphere. Four board members have quit since late 2015, one after serving a mere three months.
The Pennsylvania Office of Attorney General sent a letter to the trust in February that gave the board until July 31 to adopt some changes or face possible legal action. On Friday, the attorney general announced a deal with the trust, unveiling an agreement that establishes term limits for board members and sets base compensation at $110,000 a year, before add-ons. Three trustees who have already served more than a decade will step down by the end of December. Two other long-timers, including the chairwoman, Velma A. Redmond, will stick around through 2017 to provide institutional memory.
To the board’s detractors — and there are many, in academia and in an alumni group called Protect the Hersheys’ Children — the agreement is only the latest attempt at a tummy tuck for an institution that, they say, needs a heart transplant.
This might be a strictly local story but for that multibillion-dollar fortune and the takeover bid by the food giant Mondelez International. The chocolate company’s board batted away the offer in early July. A Hershey Company representative declined to comment, citing the quiet period before an earnings report, but it’s unlikely the company said anything about the bid without consulting the trust’s board.
“They are the power behind the throne,” said Bob Fernandez, author of “The Chocolate Trust,” a book about the board published last year. “Almost no one knows their names, and they aren’t in the public much, but they are the ones behind the scenes who control what will happen to the largest chocolate company in the country.”
Perhaps it is naïve to expect that a treasure as immense as $12.3 billion could sit anywhere without producing at least some acrimony and intrigue. In a way, this is a tale about human nature, and how great gobs of cash evince both the best and worst of it. While the money is earmarked explicitly for disadvantaged children, its fate is decided by grown-ups. And while they may care deeply about the school, at the same time some are being enriched financially, and others — mostly elected officials — have shown motivations more political and economic than scholastic.
During a recent interview at the Hershey Trust office, which operates out of the 22-room home that was once Mr. Hershey’s, Ms. Redmond played down the internal squabbles. She and her colleagues were devoted to the school, she said, and ready to embrace change.
“This is a new day,” she said, as negotiations over the deal announced on Friday were unfolding. “We do have a heightened sensitivity to issues that have been brought up in the past, in terms of compensation, in terms of board collaboration. We are committed to a future in which we are more transparent and no longer carrying the baggage of the past.”
This is precisely the kind of reset that has been promised for years, said Frederic Fouad, an M.H.S. alumnus and a Protect the Hershey’s Children co-founder. He said the agreement changed nothing of substance and failed to address the systemic issues that have long plagued the trust.
He and Pablo Eisenberg, a senior fellow at the McCourt School of Public Policy at Georgetown, contend that it’s absurd that board members are paid at all, other than to cover expenses. They say the school is more interested in bricks-and-mortar projects that help local vendors and the economy — more than $1 billion has been spent on upgrades and new construction in the last 20 years — than in expanding the student population.
“I don’t think I’ve seen a greater nonprofit scandal in the last 30 or 40 years,” said Mr. Eisenberg, who has studied the trust and found its leadership and structure wanting. “The whole board needs to be replaced.”
Bitter Rivalries
The warm, avuncular face of Milton Hershey beams from photographs hung just about everywhere here, the kind of ubiquity once associated mainly with communist nations and their maximum leaders. But Mr. Hershey, as everyone here calls him, more than 70 years after his death, is a kind of anti-Mao. The presence of his image seems like a token of heartfelt gratitude from locals who understand that the “sweetest place on earth,” as it bills itself, would not exist without this mustachioed man and his chocolate fortune.
He and his wife, Catherine, never had children of their own. In 1909 they founded the school, originally open only to white orphaned boys. Over the years, the criteria for students expanded and the student body now includes girls as well as children of all races, as long as they come from families at or near the poverty level.
Lately, though, some of the biggest beneficiaries of the school are the members of its board. This stems from the odd structure that results when a nonprofit entity (the school) owns for-profit companies (the Hershey Trust Company, which is the source of the board members’ salaries; the Hershey Company; and the Hershey Entertainment and Resorts Company, which operates Hersheypark and other attractions).
For years, three members of the trust board have sat on the board of the Hershey Company and one member has sat on the board of Hershey Entertainment. This makes a seat on the trust, which has paid about $100,000, a ticket to a perch on more lucrative boards: A Hershey Company board member is paid about $250,000.
Trust watchers say the rancor may have originated with the extended tenure of people like Mr. Cavanaugh, who has served on the trust’s board since 2003 and landed one of the trust’s three Hershey Company board seats the same year. According to Hershey’s most recent annual report to shareholders, Mr. Cavanaugh currently has $3.6 million in a deferred compensation account with the company.
Historically, tenure on a board seat has had an informal 10-year limit. A few members elected in the early 2000s, including Mr. Cavanaugh, have stayed longer.
When Mr. Cavanaugh learned last September that board members had apparently been conspiring behind his back, he expressed outrage, according to an internal memo that leaked to the news media.
The memo, dated Sept. 30, 2015, and written by the former chief compliance officer of the trust, Marc Woolley, described a phone conversation in which Mr. Cavanaugh told Mr. Woolley he wanted to “take out” members of the board who had run a “smear campaign” against him. Mr. Cavanaugh also told Mr. Woolley that he was aware of a letter sent by four board members to every other member except for him.
If that sounds high school, the tone of the conversation then took a dark turn. Mr. Cavanaugh threatened to deploy something he called a “suicide parachute,” though exactly what he meant is unclear. He also told Mr. Woolley, according to the memo, that he had “a timeline mapped out” of trades in Hershey stock by two board members, Joan Steel and James Nevels, implying that they were made improperly.
“He stated,” wrote Mr. Woolley in his memo, “that if I thought that the investigation into his dealings with J. K. Milne were long and expensive,” that “I had not seen anything yet.”
Mr. Cavanaugh, in a statement, disputed Mr. Woolley’s recounting of the conversation. “I believe Mr. Woolley’s memo contained a number of errors, misstatements and omissions that were self-serving and significantly changed the context of the conversation,” he said. He said he had called Mr. Woolley to discuss matters involving board members and personnel, “and to inform Mr. Woolley of my continued dissatisfaction with his job performance.”
In the conversation, Mr. Cavanaugh also articulated his theory that a trust employee named John Estey was responsible for the friction on the board. Why he thought that, Mr. Cavanaugh did not say, but he told Mr. Woolley that “John had better just continue to do work for the board.”
As it happens, Mr. Estey’s work for the board would soon end, though for reasons that had nothing to do with Hershey. A former state lobbyist, Mr. Estey had been caught in his former job in a 2011 sting by F.B.I. agents who were posing as favor-seeking executives of a fictional company. The “executives” provided Mr. Estey with $20,000 to give to lawmakers, a violation of state laws barring lobbyists from acting as conduits for corporate donations.
But Mr. Estey handed over $7,000 to state politicians. The rest he kept. In May, he pleaded guilty to wire fraud. At that time, he was earning a salary from the trust of more than $900,000 a year.
Mr. Woolley did not last at the trust much longer. In June, he was put on administrative leave. A few weeks ago, according to a spokesman for the trust, he was fired.
The reason? “The trust considered Woolley a ‘disgruntled employee,’” said a spokesman, Kent Jarrell, in an email. As evidence, Mr. Jarrell pointed to a letter, which Mr. Woolley helped write in November, in which he supposedly complained about the board.
Reached by phone last week, Mr. Woolley said, “I am anything but disgruntled. I’m disappointed about the board and their issues, but I’m passionate about the kids and the mission.”
In the Rough
The public was largely unaware of the trust’s mission, and the huge sum that Mr. Hershey had sunk in it, until 1923, when The New York Times ran a front-page article with the headline “M.S. Hershey Gives $60,000,000 Trust for an Orphanage.” By then, Mr. Hershey had become one of his era’s richest men, having found a way to turn milk chocolate, a luxury item in the 19th century, into an affordable treat for the masses.
A former farm boy, Mr. Hershey made chores a part of daily life for his orphans. Later, M.H.S. became known as one of the country’s finest blue-collar vocational schools, with training in auto-body repair, carpentry, construction, printing and more. In an era without child welfare, it was a vast improvement over the alternative, which was destitution.
Even during Mr. Hershey’s time, money from the trust was used to develop the town’s infrastructure and attractions. Usually these deals cause few ripples. But a 2006 purchase became a public relations disaster.
That year the trust purchased a money-losing golf course for $12 million, which an investigation by The Philadelphia Inquirer later found was two to three times its appraised value. The deal rescued several dozen investors who had built the course and who otherwise would have faced losses. Among those investors was Richard H. Lenny, who was the chief executive of the Hershey candy company and a member of the trust board when the acquisition was approved.
The trust also spent $5 million on a Scottish-inspired restaurant and bar on the premises.
After a torrent of negative publicity, the trust said that it had always planned to build student housing on the property as part of a school expansion. The original purchase announcement, though — issued well before the P.R. fiasco — stated that the acquisition “ensures the long-term future of the championship-caliber course.”
Ground is now being broken, according to the trust spokesman, for student homes on what was formerly known as Hershey Links.
In 2010, Tom Corbett, then the attorney general, opened an investigation of the golf course deal. That inquiry was ultimately closed by the current attorney general, Kathleen G. Kane, soon after she took office in 2013. She found no criminal conduct and stated there was no evidence that Mr. Lenny participated in the trust’s decision to buy the golf course. But she demanded reforms that were intended to curb pay, increase vigilance about conflicts of interest and hasten the recruitment of new members with backgrounds in at-risk children.
Critics said there were no teeth in the agreement struck with the trust in 2013, which is why a do-over was required on Friday.
Ms. Kane believes that the agreement simply needed an update. “I would have been pleased if we didn’t have to revisit the agreement,” she said in a recent interview in her office, overlooking the State Capitol in Harrisburg. “I thought at the time that what we signed in 2013 was a step forward, but times change, directors change, and you have to go back and make improvements.”
Ms. Kane announced the deal at a news conference on Friday, which was a bit of a surprise to many involved. Her license to practice law was suspended last September, after she was accused of leaking grand jury material to a reporter in an effort to embarrass political enemies, and then lying about it under oath. She has denied wrongdoing. Her trial for perjury and other charges is tentatively set to begin soon.
A Suitor’s Obstacle Course
What, if anything, the recent agreement and the coming turnover of members mean for the Mondelez bid is unclear. Mondelez — the maker of Oreos, Ritz crackers and an assortment of gums, chocolates and mints — has not announced that it is giving up its pursuit of the company.
On paper, the union makes a lot of strategic sense, according to Erin Lash, an analyst at Morningstar. Mondelez does not sell chocolate in the United States, and Hershey has never had a strong presence overseas.
“Mondelez has vast geographic reach,” Ms. Lash said. “Only 20 percent of its sales are in the U.S. Thirty-five percent are in Europe and the rest are in emerging markets, like Brazil, China, Russia and India.”
Hershey might also want to link up with a company that can quickly expand its revenue base beyond chocolate, as it has tried to do on its own, with a recent venture into beef jerky. Overall sales at Hershey fell last year for the first time in a decade.
Still, for Mondelez to succeed, it would need to mount one of the greatest charm offensives in corporate history. To understand why, consider what happened in 2002, when board members of the school decided that the trust’s portfolio was dangerously overweighted in Hershey stock. The group announced it was looking to sell Hershey, preferably to a company that could pay cash.
Outrage ensued. The attorney general, who was then running for governor, opposed the sale, and obtained a preliminary injunction to block it, invoking a common-law authority, known as parens patriae, to act as a kind of public guardian for M.H.S.’s students.
It was a bold power play, possible only because it was supported by many of the people of Hershey and the Dauphin County Orphans’ Court, which has jurisdiction over the trust.
The plan was soon abandoned. Ten board members resigned.
For good measure, the state legislature passed a law that year mandating that Hershey cannot be sold without the approval of the attorney general. While arguably a boon for the community, the law, according to Robert H. Sitkoff, a professor at Harvard Law School, was also indefensible.
“Imagine if the legislature of New Jersey passed a bill that said Princeton had to invest more than half of its endowment in one local company?” Mr. Sitkoff said. “That’s what the Pennsylvania Legislature did in 2002. It’s outrageous. The trust is supposed to be rescuing needy kids.”
Mondelez seems attuned to the obstacle course it would need to navigate to win Hershey. Already, the company has reportedly promised to relocate its global chocolate headquarters to Hershey, protect local jobs and take Hershey as its name.
That’s a start, said Mr. Fernandez, author of “The Chocolate Trust.”
“This isn’t just about a great share price,” he said. “It’s about absolutely boosting the local economy, which is what the trust has been doing for years.”
Mondelez, he said, might try to sway opponents of any deal by promising to add chocolate-making capacity in Hershey, or by naming trust board members to the Mondelez board.
“Basically, it will have to convince politicians in Harrisburg that it won’t walk away in five years,” he said.
Whether a deal would be good for M.H.S. depends largely on whether the trustees properly manage the windfall. There are skeptics, such as Mr. Fouad of Protect the Hersheys’ Children, who say the current members lack the kind of self-restraint demonstrated by those 10-year-old boys with that plate of brownies. But Mr. Fouad wants to see the sale anyway.
“The board is incompetent,” he maintains. “But it’s far better to get the billions and then let the right people pressure them to reform. Failing to would be just another triumph of local interests and jobs over needy kids. And five decades of that is enough.”
Correction: August 14, 2016
An article on July 31, about strife in the Hershey Trust Company, which controls Hershey, the candy dynasty, omitted a response from Robert F. Cavanaugh, the trust’s former chairman, to an internal memorandum written by the trust’s former chief compliance officer, Marc Woolley. In the memo, Mr. Woolley recounted a phone conversation in which Mr. Cavanaugh accused board members of running a “smear campaign” against him. Mr. Cavanaugh’s response disputed that memo, saying it contained “a number of errors, misstatements and omissions that were self-serving and significantly changed the context of the conversation.”

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