By Liz Hoffman, Dana Mattioli, Dana Cimilluca, and David Benoit
Mondelez International Inc. has made a roughly $23 billion bid
for chocolate giant Hershey Co. in what would be a blockbuster deal
uniting two of the world's best-known candy makers.
Mondelez, which makes Oreo cookies and Cadbury chocolate bars,
recently sent a letter to Hershey proposing the tie-up at $107 a
share, according to people familiar with the matter. The bid is 50%
cash and 50% stock, they said.
Hershey shares surged 15% to $111.87 after The Wall Street
Journal first reported on the bid. Mondelez gained 5% to
$45.13.
Hershey promptly rejected the approach, saying its board
determined the expression of interest provided no basis for further
discussion with Mondelez.
The maker of eponymous Kisses and chocolate bars had a $21
billion market value Thursday ahead of the report. Mondelez had a
$69 billion market value.
Any sort of deal would be contingent on the approval of the
Hershey Trust, which holds 8.4% of the famous company's common
stock and 81% of its voting power. The Trust has been opposed to
selling the company in the past, though Mondelez is prepared to go
to lengths to win it over.
Mondelez is pledging to protect jobs following a merger of the
companies, locate its global chocolate headquarters in Hershey,
Pa., and rename the company Hershey, according to one of the
people.
A Mondelez-Hershey deal would create the world's biggest candy
company, bringing together the second- and fifth-largest industry
players by revenue, according to research firm Euromonitor.
Mondelez currently ranks as the world's second-largest
confectionery maker, after Mars Inc.
The bid would be expected to face little resistance from
antitrust authorities, as Mondelez doesn't have its own presence in
the U.S. chocolate market. Hershey, meanwhile, has a limited
non-U.S. presence.
Still, it's far from clear the offer will lead to a deal.
For one thing, the bid could cause others who have long coveted
the iconic company to come out of the woodwork. Nestlé SA is one
possibility. The Swiss food giant already licenses the KitKat brand
to Hershey in the U.S. Nestlé has the right to reclaim control of
the chocolate-covered wafer treat if someone else buys Hershey --
at no cost, which could diminish Hershey's value to Mondelez by $3
billion, according to a person familiar with the matter. Nestlé
could have greater antitrust issues in the U.S. if it were to try
to buy Hershey, however.
Then there's the trust, which was established by the
122-year-old company's founder, Milton Hershey, and runs a school
in Hershey for underprivileged children. The trust's mandate
extends beyond simply maximizing shareholder value.
Mr. Hershey was considered as much a philanthropist as an
entrepreneur. His Mennonite background led the son of German
immigrants to a belief that businesses and their leaders are
morally obligated to share their wealth with society. So as he
built the chocolate company, he raised a town as well, erecting a
bank, a department store, churches, golf courses, a zoo and a
trolley system -- public accouterments that were all completed by
the early 1900s. Then he and his wife, Catherine, founded a school
for orphan boys, now called the Milton Hershey School. The prime
beneficiary of the Hershey School Trust is the Milton Hershey
School, which was set up in 1909 to serve disadvantaged students
and is now a lavishly appointed institution.
More than a decade ago, Wrigley, now a unit of the privately
held candy giant Mars, tried to buy Hershey, but resistance from
the trust scuttled the deal at the last minute.
There has been turnover recently on the trust's board. The
Pennsylvania Attorney General is investigating the board for
alleged overpayment of directors and conflicts of interest. This
year, several board members of the Trust have resigned or been
fired, and it's possible the shake-up could change the dynamic and
sentiment of the board. The trust has said it is working with the
attorney general's office.
It's also unclear what reception any deal would get in the town
of Hershey, where the company is based and where the streetlights
along Chocolate and Cocoa Avenues are topped with giant Hershey
kisses.
Hershey had sales of $1.8 billion in the first quarter, a 5.6%
decline from the year-earlier period, in part because of adverse
currency moves. In 2015, the candy maker had sales of $7.4 billion
and earnings of $513 million. Today, the company has about 80
brands, and has recently moved to court more health-conscious
consumers.
Mondelez, based in Deerfield, Ill., had sales of $29.6 billion
in 2015, a 13.5% drop from the year-earlier period -- also in part
because of currency pressure. In the first quarter, the company had
revenue of $6.5 billion, down nearly 17% from the year earlier amid
pressure on its coffee business.
Mondelez has a complicated deal-making history. The company is
the product of a 2012 separation from Kraft Foods Inc., which had
been under pressure from Trian Fund Management LP and other
activist investors. That came only two years after Kraft had
acquired the U.K. chocolate company Cadbury PLC for $19 billion,
and the chocolate assets went with Mondelez in the separation,
while Kraft Foods Group Inc. kept cheeses, nuts and other
well-known grocery-store brands.
In 2015, Kraft Foods merged with ketchup giant Heinz, owned by
Brazilian private-equity giant 3G Capital Partners. William
Ackman's Pershing Square Capital Management LP disclosed a $5.5
billion stake in Mondelez last year, betting the company would
become a target, rather than an acquirer, in a coming wave of
consolidation in the snack industry. Mr. Ackman, an investor in 3G,
has pushed Mondelez to either cut costs or consider selling to
Kraft Heinz Co., as it's now known.
Amid trouble in his own portfolio, which led that bet to become
an outsize holding proportionally, Mr. Ackman recently trimmed the
Mondelez stake to 5.6% including options.
Trian also has a big Mondelez holding and firm founder Nelson
Peltz is on the snack company's board.
Trian in 2013 unveiled stakes in PepsiCo Inc. and Mondelez and
began pushing for a merger of the two to be followed by a spinout
of Pepsi's beverage business, which Mr. Peltz argued was dragging
down its more profitable and faster-growing snack business.
Pepsi rejected the idea, and Trian dropped its call for a merger
when Mr. Peltz joined Mondelez's board in 2014. Trian owns about 3%
of the snack maker's stock, a stake worth more than $2 billion at
recent prices.
-- Annie Gasparro contributed to this article.
Write to Liz Hoffman at liz.hoffman@wsj.com, Dana Mattioli at
dana.mattioli@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and
David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
June 30, 2016 14:38 ET (18:38 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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