Hershey rejects Mondelez's offer to acquire the company for $107 per share

by Josh Sosland
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Hershey and Mondelez
Mondelez made a bid to acquire The Hershey Co., which would create the world's largest candy company.

EAST HANOVER, N.J.  -- Shares of the Hershey Company surged as much as 21% in trading June 30 in response to news Mondelez International has expressed interest in acquiring the Hershey, Pa., chocolate maker.

While Mondelez has not yet commented on its intentions, Hershey confirmed that it had received a “preliminary, non-binding indication of interest” from Mondelez International to acquire Hershey for $107 a share. Hershey said the proposal, first reported in The Wall Street Journal, suggests Mondelez would pay for Hershey with a mix of cash and stock.

“The indication of interest also included other non-monetary considerations,” Hershey said.

At $107, Mondelez would be paying about $23 billion for the Hershey shares. Including the assumption of debt, the transaction could be worth more than $25 billion.

Mondelez Brands
Mondelez’s billion-dollar brands include Oreo, LU and Nabisco biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolate; and Trident gum.

After receiving input from the company management and outside financial and legal advisors, Hershey’s board of directors unanimously rejected the expressions of interest “and determined that it provided no basis for further discussion between Mondelez and the company.”

“The company’s board of directors and management team are committed to enhancing value for all stockholders in accordance with the company’s strategic plan,” Hershey said.

In New York Stock Exchange trading, Hershey shares closed June 30 at $113.49 per share, up $16.35, or 16.8%. Before June 30, the record high price for Hershey shares was $111.35, set in January 2015.

Based in East Hanover, Mondelez has annual sales of about $30 billion. The company’s leading brands include Oreo, Milka, Cadbury, Trident and Chips Ahoy!

Hershey brands
Hershey’s top brands include Hershey, Kit Kat, Reese’s, Jolly Rancher and Twizzler.

The W.S.J. noted a transaction would have to be approved by the Hershey Trust, which owns 8.4% of Hershey’s common stock and maintains 81% of the company’s voting power. The Trust has opposed selling the company in the past, but Mondelez appears prepared to do what it takes to make a deal happen, sources told the W.S.J.

Robert Moskow of Credit Suisse speculated in a Dec. 11, 2015, report that Hershey may be considering participating in the growing industry trend toward consolidation.

Robert Moskow, Credit Suisse
Robert Moskow of Credit Suisse

“We find it highly unlikely that the Hershey Trust (which controls 80% of the stock) would ever consider selling the company or entering a merger that would give up its control,” Mr. Moskow wrote. “It is possible that the Trust would consider diluting itself to enter a merger or a joint venture with a strong international player (perhaps with Ferraro?), but this is just speculation on our part.”

With a presence in 165 countries, Mondelez International is a leader in biscuits, chocolate, gum, candy and powdered beverages. The company’s billion-dollar brands include Oreo, LU and Nabisco biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolate; and Trident gum.

Hershey, meanwhile, generates most of its $7.3 billion in annual revenues in the United States. The company’s top brands include Hershey, Kit Kat, Reese’s, Jolly Rancher and Twizzler.

Mondelez brands
Jack Skelly, a food analyst with Euromonitor International

“The news that Hershey is the subject of a bid from Mondelez has certainly captured the imagination of those in the food industry,” said Jack Skelly, a food analyst with Euromonitor International, Chicago. “Yet rumors of an acquisition of Hershey have persisted for some time, suggesting the part public, part Trust-owned business has been seriously considering selling.

“From a geographic perspective, the move makes sense. Mondelez has achieved its position as the second largest confectionery manufacturer in the world without any sizeable presence in the U.S. – the world’s largest chocolate confectioner market. Hershey sales are unlikely to cannibalize those of Mondelez’s elsewhere, with roughly 85% of its sales achieved in North America.” 
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