It’s merger time in chocolate land. Now that Kraft has swallowed Cadbury, in effect outbidding the Hershey/Ferrero odd couple, Hershey itself is little more than an ant at the candy company picnic dominated by Mars/Wrigley, Kraft/Cadbury and Nestlé. And Nestlé feels a little piqued having been pushed to third place. What to do? Buy Hershey and reclaim the number one spot. At least that’s what a Reuters report suggests.
Unfortunately, that’s not as easy as taking over Cadbury. Sure, Cadbury had all these Quaker roots, but its shareholders sure didn’t share in that faith. The story with Hershey is a bit different. Eighty percent of Hershey stock are controlled by the Hershey Trust, the charity set up by Milton Hershey to insure that his social endeavors continue past his own lifespan.
Nestlé, of course, is salivating. Hershey’s product line would so nicely complements its own. And the arguments for a buyout are compelling (if you are a financial analyst or take-over lawyer). Hershey is almost exclusively focused on the U.S. market without any foreign source of income. Now that Kraft owns Cadbury, Hershey can expect significant pressure on its home turf. Equally important, Hershey does not have alternate business interests (pet food, mayo, stuff like that) and is therefore more vulnerable to price spikes in commodity markets. According to the report, Hershey’s could be had for $10-11 billion and some $2 billion in creative financing.
So prepare for a world where cheap candy will come from only three concerns.
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