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Mondelez Offers $23 Billion Takeover Bid: Hershey Rejects

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Mondelez Offers $23 Billion Takeover Bid: Hershey Rejects

Mondelez International Inc. provided a preliminary takeover offer to Hershey Co of $107 a share in both cash and stock. 

Hershey Co. turned down the deal. 

This deal would have resulted in the creation of the largest candy company in the world.

The offer would have valued the company at around $23 billion dollars.

It was unanimously rejected, according to a statement made last Thursday.

The following chart shows the stock Activity for the Hershey’s trust in October of 2015, according to Octafinance:

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Hershey Says?

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Hershey stated that the board of directors for the company gained input from both managements within the company and financial and legal advisors on the outside. 

They were careful in their evaluation of interest. 

The final determination made by the company was that there was no reason to further the discussion between themselves and Mondelez.

The Hershey Trust supports not only the Milton Hershey school, but many other endeavors as well. 

This trust holds around 81% of voting shares within the company. 

Because of the significant percent of voting shares, taking over Hershey appears to be an uphill battle, according to David Palmer (Employed at RBC Capital Markets as an analyst.)

According to Octafinance, the following chart shows where the Hershey Trust Company stood on October 21, 2015:

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It’s All About the Politics

Palmer further stated in an e-mail that Hershey being sold would continue to be highly political in nature and very unlikely to happen. 

Mondelez Chief Executive Officer, Irene Rosen Field, is feeling the blow from the deal. 

She is trying to gain balance for the overseas-focused business running Oreo Maker. 

Nearly 90% of all revenue generated by Hershey took place in North America last year. 

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Or Is It About the Money?

The majority of this revenue came from selling chocolate.

 The combination of the two companies would have put Mondelez higher up than Mars Inc. 

Euromonitor International states that it would have made Mondelez the largest confectioner in the world.

Jack Skelly, employed at Euromonitor as an analyst, stated that the move made sense when you looked at it from a geographic perspective. 

Mondelez reached its current position of second-largest confectionery manufacturer globally without having any presence to speak of in the Unities States.

The request for comment to Mondelez was not immediately responded to, however.

Hershey’s stock saw earlier gains after remarks were released by the company. 

Shares are still near an all-time high for the company, rising 21% in New York to $117.79. 

This shows that investors are still hoping that some deal will be made. 

The following graph shows share standings for Hershey, in comparison with some of America’s other favorite name brands.

  The information for the following stocks chart was found on Investopedia:

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What About the Employees?

Wall Street Journal reported that Mondelez promised that they would maintain jobs and that the combined company’s headquarters would be in Hershey’s hometown. 

The newspaper further reported that the plan was for the new combined business to operate under the name Hershey.

When Hershey gave its statement, it neglected to comment on details about this subject. 

However, they did state that the transaction had to do with considerations that were non monetary. 

Hershey further said that both their board and their management were committed to enhancing the value for their stockholders by the strategic plan for the company.

The following list breaks down what Mondelez was willing to do for the employees:

  • Not fire anyone
  • All the staff of both companies would keep their jobs
  • The headquarters for the combined company would be in Hershey’s hometown
  • Make the merger as painless as possible.

Does the Deal Make Sense?

Both companies have been communicating with one another the past few months. 

However, they were unable to reach an agreement. 

This information was reported to the Bloomberg News by an anonymous source that is familiar with the overall situation between the two companies.

In 2016, according to Bloomberg data, food-industry deals have slowed. 

This decrease in pace followed a drop in crop last year after transactions that valued over $158 billion were announced. 

H.J. Heinz combination with the Kraft Foods Group Inc., valued at $55 billion, which was the largest of these deals.

Was Hershey the Rebound from Mondelez’s Recent Breakup?

In 2012, Mondelez split away from Kraft Foods. 

At the time of the split, the company was set up with a focus on faster-growing markets that were just emerging. 

The company was hurt by the global slowdown that has taken place over the past few years. 

This global downturn made the U.S. market look a lot better to Mondelez. 

It is also speculated that it could have been a defensive move made by Mondelez to prevent them from being a takeover target.

The following shows a brief timeline of what happened:

  • In 2016, Mondelez broke up with Kraft
  • Mondelez focuses on emerging markets that are growing quickly
  • Mondelez was hurt by current global slowdown
  • Mondelez became attracted to U.S. market
  • Mondelez made a move on Hershey
  • Hershey rejected Mondelez

What Are the Chances?

Palmer stated that they look at a Hershey-Mondelez combination as a remote chance, they can understand the desire of Mondelez to make a deal. 

He further indicated that there is a full recognition of the Hershey brand. 

However, Hershey has its challenges that it is currently facing. 

Now, they are suffering from the fact that Americans have cut back the amount of sugar they are consuming. 

This has prompted the company to push deeper in producing foods like that of beef jerky.

The following graph from Wikipedia shows the amount of sugar consumption in the U.S. from 1970 until 2005. 

As you can see, sugar consumption was relatively high during this time and has fallen since awareness has been raised. 

Those were good years for Hershey.

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According to one analyst, these troubles have made the company a bigger target for takeover.

The questions are more along the lines if a buyout is something the family trust would ever be on board. 

For a long time, the family trust has been viewed as an impediment when it comes to making a deal.

Pablo Zuanic stated in a note that a hostile bid would never succeed.

Zuanic is employed by Susquehanna International Group as an analyst. 

The following list summarizes issues faced by Hershey:

  • People stopped eating as much sugar due to the fact Americans are trying to lower obesity
  • Hershey makes candy
  • Less sugar means less candy
  • Less candy means fewer sales for Hershey
  • Hershey needs people to eat more sugar
  • Hershey focuses on snacks like Beef Jerky
  • Family trusts unlikely to sell or make deals for the family business

 

 

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