Hershey's Trust Has History of Vetoing Deals
June 30 2016 - 3:38PM
Dow Jones News
By Annie Gasparro
The roughly $23 billion bid for Hershey Co. by snack maker
Mondelez International Inc. won't happen without the approval of
the chocolate maker's largest shareholder.
And that key shareholder, Hershey Trust Co., has a long and
complicated history of eschewing deals.
A shake-up in the trust's board membership this year, a need for
diversification, and an investigation by the state's attorney
general could change those dynamics. But with 8.4% of the famous
company's common stock and 81% of its voting power, the trust has
shown few signs of changing its behavior in recent years.
The trust, set up by chocolate icon Milton Hershey back in 1905,
controls an approximately $12 billion endowment for the Milton
Hershey School, which runs a school in the town for underprivileged
children, and related entities. The trust's mandate extends beyond
maximizing shareholder value.
Back in 2002, the trust blocked an acquisition of Hershey by Wm.
Wrigley Jr. even though the deal appeared to accomplish all the
goals the trust had set for itself: dilute its investment in
Hershey, get a big premium and maintain its relationship to the
community of Hershey, Pa. In a last-minute twist, the trust
rejected bids from Wrigley as well as a joint bid from Nestlé and
what was Cadbury Schweppes at the time.
The community of Hershey, Pa., and alumni of the Milton Hershey
School had protested a sale of Hershey, fearing it would hurt the
town. Despite the desire to decrease its exposure to the U.S. candy
market, the trust ultimately succumbed to the intense public
opposition, said a person close to the board at the time.
Shortly after, the trust changed its bylaws making it harder for
members to vote for a sale in the future.
The Hershey Trust's history of thwarting deals reached an apex
in 2007. Then-Cadbury CEO Todd Stitzer had approached Hershey CEO
at the time, Richard Lenny, in early 2007 about combining the two
companies to create a "global confectionery powerhouse." But when
the manager of the trust's daily operations learned about the
potential deal talks, he accused Mr. Lenny of withholding
information from the trust. Trust members also later accused the
CEO of not detailing the performance woes of the company.
The dust-up resulted in the resignation of Mr. Lenny and eight
Hershey directors in what a local paper dubbed "the Sunday night
massacre." By the time the Hershey Trust tried to resume talks with
Mr. Stitzer in late 2007, the climate for doing a deal had
chilled.
Mondelez ended up acquiring Cadbury in 2010.
The trust now has about two-thirds of its endowment tied up in
Hershey stock.
Earlier this year, the trust appointed three new directors, and
the Pennsylvania attorney general's office is seeking the
resignation of several longstanding board members.
New members may be in favor of diversifying more by selling the
company, which has been struggling in recent years to keep up with
the change in consumer taste in the U.S.
About three-quarters of Mondelez's sales come from outside North
America, whereas 88% of Hershey's sales are domestic. Mondelez also
has a much larger snack business, with brands like Oreo cookies and
Ritz crackers. Hershey has been bulking up its snack profile with
acquisitions of Krave beef jerky and other small brands.
"The trust essentially has the veto vote," said Jack Skelly,
food analyst at Euromonitor International.
But that won't necessarily stop Mondelez from trying. "I think
they're more than happy to keep driving this. They wouldn't have
started the process of this if they didn't they had a good
chance."
Julie Jargon contributed to this article.
Write to Annie Gasparro at annie.gasparro@wsj.com
(END) Dow Jones Newswires
June 30, 2016 15:23 ET (19:23 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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