Hershey shares surged as much as 15% in Monday trading following a Bloomberg report suggesting that Mondelez may attempt another takeover of the iconic chocolate company. This marks a notable development in ongoing speculation about Hershey's future as an independent entity, with its shares now on track for their best day since mid-2016.
Prior to this rally, Hershey's stock had faced a turbulent year, with its value falling about 6% due to concerns over rising cocoa prices and the growing use of GLP-1 drugs, which according to some analysts they could suppress the demand for confectionery products. With Monday's boost, Hershey's shares have gained 7% year to date, boosting its market capitalization to $40.49 billion.
Meanwhile, Mondelez, the snacks giant behind brands such as Oreo, Cadbury and Honey Maid, saw its shares fall 2% in morning trading. The company has faced its own challenges this year, with its shares falling 15% in 2023, reducing its market capitalization to $82.22 billion.
This latest market activity has reignited discussions about Mondelez's interest in Hershey, activity that dates back years. Hershey shares hadn't seen such a single-day gain since June 30, 2016, when they jumped more than 16% after Mondelez publicly announced a $23 billion offer to acquire the company. Despite the buzz surrounding the offer, Hershey's board of directors unanimously rejected the proposal. By August of that year, Mondelez had officially abandoned the pursuit of a deal.
Hershey's legacy of independence
Founded in 1894 by Milton Hershey, the company has remained independent despite multiple acquisition attempts and a strategic review by its board of directors in 2007. Hershey's unique corporate structure has played a critical role in preserving its independence.
The company's dual-class stock structure gives holders of Class B shares, owned primarily by the Hershey Trust, significant voting power: 10 votes per share compared to the single vote afforded to holders of Class A shares. This arrangement ensures that the Hershey Trust maintains substantial control over the direction of the company. According to a recent research note from JP Morgan analyst Ken Goldman, this structure makes it extremely difficult for outside entities to gain a controlling stake in Hershey.
Further complicating any potential takeover is Pennsylvania law, which grants the state attorney general the authority to intervene in transactions that could weaken the Hershey Trust. This safeguard was clearly demonstrated in 2002, when the Hershey Trust announced its intention to sell its controlling interest in the company to Wrigley. The proposed sale sparked public outcry, prompting Pennsylvania's attorney general to block the deal through the Dauphin County Orphans' Court, which oversees legal matters related to charitable organizations. The fallout led to the resignation of 10 of the trust's 17 board members.
Consolidation in the consumer goods sector
The renewed interest in Hershey comes at a time when consumer packaged goods companies are looking to acquisitions as a means to boost revenue. Years of price increases across the industry have put a strain on consumer demand for existing product lines, prompting companies to explore new growth opportunities through mergers and acquisitions.
For example, Mars, the owner of M&M's, made headlines this summer with its $36 billion acquisition of Pringles maker Kellanova. Such deals highlight the growing appetite for consolidation in the food and snacks sectors as companies seek to expand their portfolios and strengthen their market positions.
Mondelez's interest in Hershey aligns with this broader trend. The acquisition of Hershey would provide Mondelez with a stronger position in the North American chocolate market, while complementing its existing portfolio of globally recognized snack brands. However, any new attempt to acquire Hershey would face significant hurdles, both due to the company's ownership structure and the regulatory landscape in Pennsylvania.
A delicate balance between legacy and opportunity
Hershey's legacy as a company deeply rooted in its community and history adds an additional layer of complexity to any potential acquisition. The Hershey Trust was established to support the Milton Hershey School, a philanthropic institution dedicated to providing education and care to underprivileged children. Therefore, the trust's decisions are not driven solely by financial considerations but also by its mission to support Milton Hershey's vision.
This mission has historically influenced the company's resistance to takeover attempts, with concerns that an acquisition could compromise its charitable commitments. For the Hershey Trust, maintaining control over the company not only means preserving its independence, but also protecting the values and legacy it represents.
What is the future of Hershey and Mondelez?
While the Bloomberg report has reignited speculation about a potential deal, neither Hershey nor Mondelez have confirmed any active negotiations. Given the challenges posed by Hershey's governance structure and Pennsylvania's legal protections, any takeover attempt would require navigating a complex web of financial, legal and community considerations.
For now, the market reaction underscores continued interest in Hershey as a valuable asset in the global snack and candy industry. Whether Mondelez decides to pursue another bid or shift its attention elsewhere, Hershey's stock performance on Monday serves as a reminder of the company's enduring appeal and the challenges of balancing tradition with the pressures of a rapidly changing market. evolution.
As consolidation continues to reshape the consumer goods landscape, Hershey's future remains a compelling story, blending its rich history with the opportunities and challenges of the modern business environment.
