Strategy

Mondelez Offer Not Sweet Enough for Hershey

The $22.8 billion proposal would create the world's largest candy maker but the Hershey Trust may stand in the way of any suitor.
Matthew HellerJune 30, 2016

Hershey’s board on Thursday summarily rejected a $22.8 billion takeover offer from Mondelez International that would create the world’s largest candy company.

Mondelez offered $107 a share for the iconic maker of Hershey’s Kisses and Reese’s Peanut Butter, representing a 10% premium to the closing price on Wednesday. On news of the offer, the stock rose 16.8% to $113.49.

But Hershey rebuffed its suitor, saying its board “determined that it provided no basis for further discussion between Mondelez and the company.”

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A merger would combine Mondelez, the second-largest candy company behind Mars, with industry No. 5 Hershey. But as The Wall Street Journal reports, any deal would be contingent on the approval of the Hershey Trust, which holds 8.4% of the company’s common stock and 81% of its voting power.

More than a decade ago, Wrigley, now a unit of Mars, tried to buy Hershey, but resistance from the trust scuttled the deal at the last minute.

“I think the Hershey Trust is the biggest risk to this deal,” Brittany Weissman, an analyst at Edward Jones, told CNBC. “There is some risk something like that could happen again.”

With the stock trading higher than the speculated offer price, investors may be betting Mondelez could sweeten its offer, or another suitor could appear. “A significant premium versus packaged food peers will be required to satisfy the Hershey Trust,” S&P Global analyst Joe Agnese said in a note.

An offer of $126 per share would give Hershey a P/E ratio of 27 and a 15% premium over other packaged food companies.

Mondelez, whose brands include Oreo cookies and Cadbury chocolate bars, has pledged to protect jobs following a merger, locate its global chocolate headquarters in Hershey, Pa., and rename the company Hershey, according to the WSJ. Hershey had sales of $7.4 billion and earnings of $513 million in 2015.

“From the Mondelez perspective, I think it’s a really good fit,” Weissman told Forbes, suggesting that Hershey’s strength in confectionery and chocolate would complement Mondelez’s presence in cookies and crackers.