Hershey’s stock saw a sharp rise of up to 15% in early Monday trading following a Bloomberg report suggesting that Mondelez may be attempting another takeover of the iconic chocolate company. This marks a notable development in the ongoing speculation surrounding Hershey’s future as an independent entity, with its shares now on track for their best day since mid-2016.
Before this surge, Hershey’s stock had faced a turbulent year, with its value dropping approximately 6% due to concerns over rising cocoa prices and the growing use of GLP-1 drugs, which some analysts believe could suppress demand for confectionery products. With Monday’s boost, Hershey’s stock has gained 7% year-to-date, increasing its market capitalization to $40.49 billion.
Meanwhile, Mondelez, the snack giant behind brands like Oreo, Cadbury, and Honey Maid, saw its shares dip 2% during morning trading. The company has faced its own challenges this year, with its stock down 15% in 2023, reducing its market capitalization to $82.22 billion.
This latest market activity has reignited discussions about Mondelez’s interest in Hershey, a pursuit that dates back years. Hershey’s stock hasn’t seen a similar single-day gain since June 30, 2016, when it jumped over 16% after Mondelez publicly announced a $23 billion bid to acquire the company. Despite the buzz surrounding the offer, Hershey’s board of directors unanimously rejected the proposal. By August of that year, Mondelez had officially abandoned its pursuit of a deal.
Hershey’s legacy of independence
Founded in 1894 by Milton Hershey, the company has remained independent despite multiple takeover attempts and a strategic review by its board of directors in 2007. Hershey’s unique corporate structure has played a critical role in preserving its independence.
The company’s dual-class share structure gives holders of its Class B stock, primarily owned by the Hershey Trust, significant voting power—10 votes per share compared to the single vote granted to holders of Class A stock. This arrangement ensures that the Hershey Trust maintains substantial control over the company’s direction. According to a recent research note from JP Morgan analyst Ken Goldman, this structure makes it exceedingly difficult for outside entities to gain a controlling stake in Hershey.
Further complicating any potential acquisition is Pennsylvania law, which grants the state attorney general the authority to intervene in transactions that might undermine the Hershey Trust. This safeguard was prominently demonstrated in 2002, when the Hershey Trust announced plans to sell its controlling interest in the company to Wrigley. The proposed sale sparked public outcry, prompting the Pennsylvania attorney general to block the deal through the Dauphin County Orphans’ Court, which oversees legal matters related to charitable organizations. The fallout led to the resignation of 10 of the trust’s 17 board members.
Consolidation in the consumer goods sector
The renewed interest in Hershey comes at a time when consumer packaged goods companies are looking to acquisitions as a means of boosting revenue. Years of price hikes across the industry have strained consumer demand for existing product lines, pushing companies to explore new growth opportunities through mergers and acquisitions.
For instance, Mars, the owner of M&M’s, made headlines this summer with its $36 billion acquisition of Pringles maker Kellanova. Such deals highlight the increasing appetite for consolidation in the food and snack industries as companies seek to expand their portfolios and strengthen their market positions.
Mondelez’s interest in Hershey aligns with this broader trend. Acquiring Hershey would provide Mondelez with a stronger foothold in the North American chocolate market while complementing its existing portfolio of globally recognized snack brands. However, any renewed attempt to acquire Hershey would face significant hurdles, both due to the company’s ownership structure and the regulatory landscape in Pennsylvania.
A delicate balance between legacy and opportunity
Hershey’s legacy as a company deeply rooted in its community and history adds another layer of complexity to any potential acquisition. The Hershey Trust was established to support the Milton Hershey School, a philanthropic institution dedicated to providing education and care for disadvantaged children. As such, the trust’s decisions are not solely driven by financial considerations but also by its mission to uphold Milton Hershey’s vision.
This mission has historically influenced the company’s resistance to takeover attempts, with concerns that an acquisition could compromise its charitable commitments. For the Hershey Trust, maintaining control over the company is not just about preserving its independence but also about protecting the values and legacy it represents.
What’s next for Hershey and Mondelez?
While the Bloomberg report has reignited speculation about a potential deal, neither Hershey nor Mondelez has confirmed any active negotiations. Given the challenges posed by Hershey’s governance structure and Pennsylvania’s legal safeguards, any takeover attempt would require navigating a complex web of financial, legal, and community considerations.
For now, the market’s reaction underscores the ongoing interest in Hershey as a valuable asset in the global snack and confectionery industry. Whether Mondelez decides to pursue another bid or shifts its focus elsewhere, Hershey’s stock performance on Monday serves as a reminder of the company’s enduring appeal and the challenges of balancing tradition with the pressures of a rapidly evolving market.
As consolidation continues to reshape the landscape of consumer goods, Hershey’s future remains a compelling story, blending its rich history with the opportunities and challenges of the modern business environment.
