Prospective Hershey Suitors Face Numerous Unusual Hurdles
July 01 2016 - 5:26PM
Dow Jones News
By Annie Gasparro and Julie Jargon
Snack maker Mondelez International Inc. or any other potential
bidder for Hershey Co. is up against not only a board that
indicated it doesn't want to sell, but a secretive, controlling
shareholder -- and the state's top law officer.
Mondelez, whose roughly $23 billion bid was quickly rebuffed
this week, is expected to continue fighting for a union. The
company said Friday it handles situations such as this "through
private communications between companies."
But, if the company continues its pursuit, it will have to
contend with an unusual number of additional legal and political
hurdles unique to deal making with the famous chocolate maker.
No deal would happen without the blessing of Hershey Trust Co.,
which controls 81% of the company's voting power and 8.4% of its
common stock.
Set up in 1905 by chocolate icon Milton Hershey, the trust's
mission is to make decisions based on the potential impact to the
Milton Hershey School for underprivileged children, and the
community of Hershey, Pa. -- which had protested selling the
company in the past.
Any sale would also need final approval of Pennsylvania's
attorney general, who -- under an unusual 2002 state law -- has the
power to countermand the trust, and has done so in the past.
Yet another challenge is the current political turmoil in the
state, where Attorney General Kathleen Kane is riding out the last
few months of her first term, having been stripped of her law
license after being accused of leaking confidential information and
lying about it. Ms. Kane has said the charges against her are part
of a conspiracy involving former state prosecutors she was
investigating.
Other food makers, including Kellogg Co. and Campbell Soup Co.,
have significant ownership by family and trusts, but Hershey is
further subject to a state law that requires the top
law-enforcement official to green light the sale of any company
controlled by a charitable trust.
The law is a "public policy tragedy," according to Robert
Sitkoff, a Harvard Law School professor who has studied the trust.
He said that diversifying the trust's portfolio would benefit the
school and community but said he thinks any deal would face
difficulties.
Others, including a former Pennsylvania attorney general, said a
sale would hurt the community by resulting in job losses and other
adverse economic and social impacts.
"Predicting and trying to rationalize the Trust's behavior has
always been a tricky exercise," said Susquehanna analyst Pablo
Zuanic.
A spokesman for the Hershey Trust board said it wouldn't comment
on whether it supports selling the company, but three trust board
members have seats on Hershey's board, which unanimously voted
against the Mondelez offer of $107 a share on Thursday.
The trust itself is juggling other problems. A continuing
investigation by the attorney general's office into alleged
overpayment of directors and conflicts of interest has led to
several directors resigning. The trust has said it is cooperating
with the probe.
The fate of the 2002 deal talks is instructive. Hershey called
off a sale to chewing-gum maker Wm. Wrigley Jr. Co., now a unit of
the privately held Mars Inc., at the final hour, after facing
resistance from the attorney general's office, which obtained an
injunction granted by Pennsylvania Orphans' Court, saying a sale
would hurt the community.
Less than two months after the scuttled deal, the Pennsylvania
governor signed an amendment to a statute requiring the attorney
general to approve the sale of any company controlled by a
charitable trust.
A spokesperson for the attorney general's office said this week
that it would need to review the details of any offers to buy
Hershey before determining if it would be in the best interest of
the school.
Write to Annie Gasparro at annie.gasparro@wsj.com and Julie
Jargon at julie.jargon@wsj.com
(END) Dow Jones Newswires
July 01, 2016 17:11 ET (21:11 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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