No PayDay: Hershey rejects Mondelēz $23bn takeover approach

Deal would create world’s largest candy company, say analysts

Hershey has rejected a takeover approach from Mondelēz International that would have created ‘the world’s largest candy company.’

Mondelēz made a ‘preliminary, non-binding indication of interest’ to acquire the Reese's Peanut Butter Cup and PayDay manufacturer for a mix of cash and stock consideration at $107 a share. This would be around $23bn, according to analysts.

In a statement issued yesterday, Hershey said its board of directors had evaluated the approach after receiving input from the company’s management and outside financial and legal advisors.

Following this review, the board of directors of the company unanimously rejected the indication of interest and determined that it provided no basis for further discussion between Mondelēz and the company,” it stated.

Mondelēz said in a statement on Friday, "We acknowledge that we made an offer to The Hershey Company. We believe that situations like these are handled best through private communications between companies. So we will not comment further at this time.” 

Lacks sizeable presence in US

Analysts said the move makes sense for Mondelēz, which is the second-largest confectionery manufacturer in the world according to Euromonitor, but lacks a sizeable presence in the US.

Mondelēz's interest in the US chocolate space is far from a surprise,” said Morningstar analyst Erin Lash in a note. “Despite its tie-up with Cadbury more than six years ago, Mondelēz has essentially been locked out of the US chocolate category because Hershey acquired the rights to the Cadbury US brands in 1988 in a deal that management has called ‘ironclad’.”

And Euromonitor analyst Jack Skelly – pointing out the deal would make Mondelēz the largest confectionery player in the world "by some margin" – added that both companies appeared to have similar ambitions to diversify into a range of snack products.

Snack brand acquisitions

Hershey has acquired snack brands including Brookside, Krave Jerky and BarkThins in recent years, while Mondelēz launched its Good Thins savory snacks in the US this year.

Whilst hindsight is a wonderful thing, it could be that Hershey has been acquiring the likes of Krave Jerky and BarkThins in an effort to bolster its value ahead of such a move,” wrote Skelly for Euromonitor.

This move does make sense for both companies, given the synergies in their focus on high growth, highly profitable snacks, their drive to improve efficiencies and their geographically complementary nature,” he added.

The announcement follows repeated rumors of a joint venture or merger between Hershey and a major international player such as Ferrero or Nestlé.

Back in 2009, speculation was rife of a Ferrero and Hershey tie-up that never materialized, but in 2011 Hershey and Ferrero established a joint logistics operation for confectionery products in North America.

And Hershey might seek an alliance with Ferrero, Ulker or Arcor in order to protect its independence, suggested consultants Hardman Agribusiness this week.

But it added that Hershey is already “well fortified” by the Hershey Trust that has stopped previous takeover attempts.

With a reported 81% of Hershey’s voting rights, the trust is a powerful voting block to be persuaded,” said Hardman in a report on its website. “In 2002 the trust was widely seen to prevent Wrigley’s from acquiring Hershey.”

Hardman added that a combined Hershey and Mondelez business would reportedly consume 650,000 mt of cocoa beans equivalent a year - about 15% of the world crop.

E-commerce boom

Both Hershey and Mondelēz are eyeing the global e-commerce boom, as Hershey is stepping up its mobile business through the use of Chinese messaging app WeChat, and Mondelēz is working with China’s Alibaba and has renewed its partnership with Facebook.

Hershey’s shares shot up by 15.6% to $112.34 midday Thursday, peaking at $117.79 by 4:05 p.m. EST.

News of the bid came shortly after Mondelēz lost its bid in tossing a US class action lawsuit alleging it manipulated wheat prices, according to this site.

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