Snack giant ends monthslong pursuit after chocolate maker
rebuffs raised bid
By Annie Gasparro and Dana Cimilluca
Oreo cookie maker Mondelez International Inc. ended its pursuit
of Hershey Co. after the famed chocolatier rebuffed its latest
acquisition offer, putting an end to a monthslong takeover campaign
that would have created the world's largest candy company.
Hershey last week rebuffed a new bid by Mondelez, the second one
since June, and indicated it would be difficult to strike a deal
before next year because of the shifting dynamics at its
controlling shareholder, the Hershey Trust Co., according to people
familiar with the matter.
Mondelez said in a statement late Monday there was "no
actionable path forward" to buy Hershey, which confirmed that there
were additional communications with Mondelez but wouldn't comment
further.
Mondelez's failure to pull off the takeover, which would likely
have been valued at upward of $25 billion, will likely reinforce
the notion among analysts and investors that Hershey is
unattainable as an acquisition target in light of its majority
ownership by a trust that for years has been reluctant to sell.
The Hershey Trust, which controls about 81% of Hershey's
shareholder votes, is in the midst of overhauling its own board of
directors following an investigation by state regulators, and
investors had wondered if Mondelez would be able to win its
approval by striking during a period of uncertainty.
Mondelez Chief Executive Irene Rosenfeld walked away from her
goal of creating a snacking and confectionary giant that would
benefit from giant global scale and the combination of major brands
like Chips Ahoy and Reese's peanut butter cups.
Hershey's stock dropped 12% after market hours Monday while
shares of Mondelez rose 3.4%.
Mondelez initially made a roughly $23 billion bid for Hershey,
The Wall Street Journal first reported in June. Hershey rejected
the offer, which amounted to $107 a share, half in cash and half in
stock.
Ms. Rosenfeld privately indicated to Hershey CEO J.P. Bilbrey
last week a willingness to raise the bid to $115 a share, the
people familiar with the matter said.
Hershey responded that the starting point for discussions would
need to be $125 a share. Hershey also indicated that the trust
would need to complete a reconstitution before there could be a
deal, and that isn't expected until possibly late next year, some
of the people said.
Hershey, with a namesake hometown in Pennsylvania built by its
success, and Deerfield, Ill.-based Mondelez, both have been under
pressure in the U.S. amid a trend toward healthier eating.
Pablo Zuanic of Susquehanna estimated that had they merged, the
combined company would see a sales increase of between 9% and
19%.
Mondelez could have helped Hershey expand overseas while
Hershey's U.S. chocolate prowess had the potential boost Mondelez
domestically.
Hershey had $7.4 billion in annual sales last year, while
Mondelez towered over it, with $30 billion
Hershey arguably had the most to gain from the hypothetical
deal, in that it has been trying to diversify from its largely U.S.
candy business, whose products include chocolate Kisses and Jolly
Ranchers, to more international markets and new products sold in
the broader snack aisle.
Both of those efforts would have been achieved swiftly with an
acquisition by Mondelez, Mr. Zuanic noted.
If the outcome of the talks with Mondelez were to attract other
bidders, they may need to be more patient than Mondelez.
The Hershey Trust, as part of a settlement with state
regulators, isn't likely to have a reconstituted board of directors
until the end of 2017.
The trust, which oversees billions of dollars for a local,
nonprofit school, has agreed to make significant governance changes
in response to the Pennsylvania attorney general's office
investigation into allegations of excessive compensation and
conflicts of interest.
"Once a totally new Trust Board is in place, by early 2018,
things could be different, but we are uncertain Mondelez will exist
in its current form by then," Mr. Zuanic said in a note to
investors earlier this month, hinting at the possibility that
Mondelez would go after another smaller rival or become a takeover
target itself.
Ms. Rosenfeld said in prepared remarks Monday that while the
company was disappointed, it remains focused on its efforts to
deliver sustainable sales growth and stronger margins. Mondelez
will be disciplined in its approach to generating value, including
through acquisitions, she added.
Indeed, Mondelez called off the pursuit because the deal was
attractive but not essential and because it was eager to avoid
overpaying, according to one of the people familiar with the
matter.
Mondelez plans to provide more details at an industry conference
on Sept. 7.
While the mergers-and-acquisitions market remains relatively
healthy, the proposed combination isn't the only one to have
unraveled this year. In March, Honeywell International Inc. pulled
the plug on its $90 billion bid for United Technologies Corp. and,
in April, Pfizer Inc. walked away from its deal to buy Allergan
PLC, which ranked as 2015's largest deal.
Mondelez, meanwhile, is under pressure to cut costs and improve
its lagging profit margin, with Nelson Peltz on its board and
fellow activist investor Bill Ackman as a major shareholder. Those
two are unlikely to support a bidding war that could distract
Mondelez from its annual savings goals.
Engaging in a big deal with those pressures is never easy, and
trying to convince a likely unwilling seller like the Hershey Trust
made it even harder.
--Tess Stynes, Dana Mattioli and David Benoit contributed to
this article.
Write to Annie Gasparro at annie.gasparro@wsj.com and Dana
Cimilluca at dana.cimilluca@wsj.com
(END) Dow Jones Newswires
August 30, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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