(Bloomberg) -- The main owner of US chocolate maker Hershey Co. has rejected a preliminary takeover offer from Mondelez International Inc., people familiar with the matter said, potentially ending a fresh pursuit that would’ve created a food giant with combined sales of almost $50 billion.
Hershey Trust Co., which has roughly 80% of the voting power at the company, turned down the bid as too low, said the people, who declined to be identified because discussions are private. Securing the trust’s backing is vital for any deal for Hershey Co. as it owns almost all of the company’s Class B stock.
Bloomberg News reported earlier this week that Mondelez made a preliminary approach for Hershey Co., citing people familiar with the matter.
Hershey Trust has used its voting power to scuttle deals in the past. In 2016, Mondelez walked away from discussions about a potential takeover of Hershey Co. after seeing a $23 billion bid rejected by the chocolate maker.
Mondelez on Wednesday approved a stock repurchase authorization of as much as $9 billion and said it’s committed to its capital allocation priorities, including reinvesting in brands and “an acquisition strategy that is focused on bolt-on assets,” a term used to describe relatively small deals. Hershey Co. would be a sizable acquisition with a valuation of more than $40 billion including debt, according to data compiled by Bloomberg.
The announcement “poured cold water” on any potential Hershey Co. deal, Adam Crisafulli of Vital Knowledge said.
A representative for Hershey Co. declined to comment while Mondelez and the Trust couldn’t be immediately reached for comment.
Shares of Mondelez rose 3.1% at 11:14 a.m. in New York. Hershey fell 4.4%.
Founded in the late 19th century, Hershey Co. is known for its chocolate and candy brands including Hershey’s Kisses, Reese’s Peanut Butter Cups and PayDay. It expanded its sweets portfolio in November with an acquisition of Sour Strips.
The company, led by Chief Executive Officer Michele Buck, has been hit by record high cocoa prices, which have come down from their peaks but remain significantly elevated compared with prior years. Sugar costs are also high. Last month, Hershey Co. cut its outlook for net sales growth and earnings, as inflation-weary consumers watch their budgets. Its Chief Financial Officer Steve Voskuil has said that cocoa would be the “biggest piece” of the firm’s cost inflation in 2025.
Mondelez made the preliminary takeover approach shortly after Hershey Co. reported third-quarter earnings that missed analyst expectations, CNBC reported earlier this week, citing unidentified people. The Hershey Trust wanted “more money,” CNBC reported Wednesday on TV.
The latest overture by Chicago-based Mondelez, which makes Ritz crackers and Oreo cookies, underscored the challenges posed by sky-high cocoa prices and penny-pinching consumers. The packaged-food industry has been grappling with declining volumes, slowing growth and a weakening global consumer. Companies are looking to innovation and new markets to bolster sales as shoppers start to push back on price hikes and become more health-conscious — a trend that could lead to consolidation.
Snack maker Mars Inc.’s agreed to buy Kellanova for nearly $36 billion including debt in August.
--With assistance from Deena Shanker, Ruth David and Vinicy Chan.
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