Analysts suggest Hershey’s ‘no’ may not dissuade Mondelez

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“We don’t think that Mondelez is going to walk away at this juncture,” Erin Lash, an analyst with Chicago-based investment research firm Morningstar Inc., said Tuesday.

And that is despite a terse rejection last week from Hershey’s board to an acquisition proposal from Illinois-based Mondelez. The maker of Oreo Cookies reportedly was also willing to move its headquarters to Dauphin County and retain the Hershey name.

The Hershey board was unanimous in its rejection of the $23 billion deal, and “determined that (the proposal) provided no basis for further discussion between Mondelez and the company.” That was all Hershey had to say publicly, and Mondelez has repeatedly declined to comment beyond confirming the existence of a proposal.

But Lash and other analysts have suggested that the benefits of a possible merger could prove too sweet for both companies to let last week’s rejection be the final word.

As Lash explained, Mondelez has been all but shut out from the U.S. chocolate market.

Mondelez owns Cadbury — in a deal engineered by former parent Kraft Foods, from which Mondelez was split off in 2012. But Hershey has held the rights to Cadbury’s U.S. brands since 1988, Lash noted. A merger with Hershey would allow Mondelez to enter the American market in a big way.

At the same time, “a deal could facilitate Hershey’s expansion outside its home turf — where it has struggled — with the aid of Mondelez’s vast geographic network,” Lash wrote in an online commentary on the prospects for a future deal.

What’s next

Lash is not alone in predicting future overtures.

• Crain’s Chicago Business, whose coverage area includes Mondelez, called Mondelez Chairman CEO Irene Rosenfeld a “consummate dealmaker” who brokered the Kraft spin-off. Rosenfeld doesn’t back down from a fight, the paper said.

• Reuters suggested that Hershey’s “once impenetrable defenses” have been weakened by investigations into the Hershey Trust Co., the company’s main stockholder, as well as controversy surrounding Pennsylvania Attorney General Kathleen Kane. Under state law, the AG would have a say in any change of ownership.

As Reuters also pointed out, state law requires any charitable trust looking to sell an asset to consider the “special relationship of the asset and its economic impact as a principal business enterprise on the community” and the “special value” of its ties to the community.

• A merger between Mondelez and Hershey would bring together the world’s second- and fifth-largest candy makers, putting the resulting company in the top spot, ahead of Mars. As several analysts note, such a deal also would have to pass muster with federal antitrust regulators. CNBC reported, however, that an unnamed source told the network Mondelez does not see a major issue there since the companies’ markets have limited geographic overlap.

• Note that in recent weeks, speculation of an approach from Nestle was circulating in investment circles, though the two companies declined to comment and no formal pitch ever emerged.

Jack Russo, a senior analyst with Edward Jones, said Hershey is “a prized asset in packaged food,” but hedged on how a merger might play out.

“Hard to say how this will go since the Hershey Trust owns 80 percent of the shares and their sole purpose is to fund a school for underprivileged school children,” Russo told CPBJ.

Lash acknowledged that a deal “is far from certain,” but “we doubt Mondelez will throw in the towel at this point.”