(Bloomberg) -- Hershey Trust Co. is a rarity in corporate America. It owns almost all of Hershey Co.’s Class B stock, giving it roughly 80% of the voting power of the company. That clout was apparent this week when it rebuffed a takeover attempt by Mondelez International Inc. that would have been the year’s biggest merger agreement. The trust has scuttled several potential acquisitions of the chocolate maker over the years, including a previous one by Mondelez in 2016.
What is the Hershey Trust?
The trust was set up by Hershey’s founder, Milton Hershey, in 1905, according to the trust’s website. It supports other entities that serve a handful of causes, including a private boarding school for lower-income children that was founded by Milton and his wife and a nonprofit group that operates institutions including a botanical garden and a theater.
The trust is regulated by the Pennsylvania Department of Banking and Securities. It has been plagued by controversy and scandals over the years. In 2016, it agreed to a deal with the Pennsylvania attorney general that included various governance changes, including term limits and a cap on compensation for board members. Three years earlier, it reached an agreement with the state attorney general’s office over a probe into its purchase of a golf course.
Why was it formed?
The trust was formed to serve as a community bank for Milton’s hometown in Pennsylvania, which would come to be known as Hershey, providing mortgages, savings accounts and loans. It also managed the payroll for Hershey Co. employees.
Its primary purpose today is managing the school trust, which had $24 billion in assets as of 2023, according to the ProPublica Nonprofit Explorer.
What happened with the Mondelez talks?
The trust rejected Mondelez’s preliminary takeover offer as being too low, people familiar with the matter told Bloomberg News. Hershey shares have fallen by about a third since their peak in 2023. Mondelez had seen an opening to start talks shortly after Hershey reported third-quarter earnings that missed analyst expectations, according to CNBC.
Mondelez on Dec. 11 announced a new $9 billion stock buyback and hinted to investors that the Hershey deal wasn’t happening. The company said its capital allocation priorities include reinvesting in brands and “an acquisition strategy that is focused on bolt-on assets,” a term used to describe relatively small deals rather than transformational ones. Hershey would have been a sizable acquisition with a market value of more than $40 billion including debt, according to data compiled by Bloomberg. The merger would have brought together the strength of Mondelez’s international snacking portfolio with Hershey’s North American confectionery business.
What other deals has the trust sunk?
The trust has scuttled several takeover attempts over the years. Its website notes that as far back as the 1980s, both the trust and the chocolate maker were worried about “a corporate raid or hostile takeover.”
Nestle SA and Wm. Wrigley Jr. Company both made offers to buy Hershey in 2002 before being rebuffed. In 2016, Mondelez was willing to raise its offer price and was still rejected in an outcome that renewed Hershey’s reputation as a company that can’t be bought.
What’s next for Hershey?
The trust may be open to other offers even as the Mondelez deal loses steam, according to CFRA analyst Arun Sundaram. “We still could see another party interested,” said Sundaram, who listed PepsiCo and Nestle as possible suitors.
TD Cowen analyst Robert Moskow said there is a “distinct possibility” that there’s a price at which the trust would be willing to cede control of the company, given changes in the leadership at the trust, its high concentration of assets in Hershey stock, and external threats to the chocolate maker.
In January 2023, Leslie Lenzo, an executive from the health-care industry, became the trust’s chief executive officer, replacing its longtime chief. In April, Institutional Investor reported that she and her team had reviewed the trust’s holdings and began exploring plans to diversify. The trust has also added new members to its board in the last several years.
One of Hershey’s major competitors, closely held Mars Inc., agreed to acquire Pringles-maker Kellanova for $36 billion including debt earlier this year. The combined company will represent a formidable competitor with significant market share.
The surging cost of cocoa has hurt Hershey and forced it to raise prices, turning off some inflation-pinched shoppers. At the same time, consumers are moving toward healthier foods, a trend that is accelerating with the popularity of weight-loss shots.
Also, the incoming Trump administration is expected to usher in a more lenient era for the US Federal Trade Commission, which may allow more major mergers to clear antitrust scrutiny.
--With assistance from Janet Freund.
©2024 Bloomberg L.P.