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Want to Buy a Chocolate Factory?
Potential Sale of Hershey Foods Embroiled in Controversy
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By Kimberly Powell

Dateline: August 29, 2002

At Issue: Hershey Foods Corp., under pressure from the charitable trust that controls 77 percent of its voting stock and 31 percent of common stock, is exploring a possible sale of the company. The board of the Milton Hershey School Trust has decided to sell the nation's largest candy maker as a way of diversifying their $5.7 billion portfolio to protect its assets. Hershey's offer to buy back the stock was rejected by the trust. The potential deal is one that industry experts think will be valued between $10 billion to $13 billion.

The Players:

  • Hershey Foods Corp., founded in 1894 as the Hershey Chocolate Company, is North America's leading manufacturer of chocolate and non-chocolate confectionary and chocolate-related grocery products. Some of their most well-known chocolate brands include Hershey Kiss, Almond Joy, and Reese's Peanut Butter Cups.
     
  • The Milton Hershey School Trust was established in 1909 by Milton S. Hershey, founder of Hershey Chocolate, to provide for the health, education, and welfare of orphaned boys. The Milton Hershey Trust School currently provides free education, career training, housing, clothing, meals and medical/dental care to over 1,200 financially and socially needy boys and girls each year.
     
  • Hershey, Pennsylvania, affectionately known as Chocolate Town, USA, has three main employers: the Hershey chocolate factory, the Penn State Milton S. Hershey Medical Center, and Hershey Entertainment & Resorts Co., which manages Hersheypark, and other tourist attractions. The Hershey chocolate factory, situated near the corner of Chocolate and Cocoa Avenues, employs almost 7,000 local employees. A new buyer could eliminate operations and slash jobs, scary news to this small, close-knit community. What would Hershey, a town where Hershey kisses adorn the lampposts and the sweet smell of chocolate fills the air, be without its chocolate factory?
     
  • PA Attorney General Mike Fisher filed a court motion on August 23, 2002, seeking a temporary restraining order to halt any potential sale of Hershey Foods Inc., saying the central Pennsylvania community would suffer irreparable harm if a sale were reached. In addition, Fisher is drafting legislation that would require Milton Hershey trustees to consider the impact of any sale on the Hershey community, not just choose the highest bid for the company. The potential sale of Hershey could have far reaching implications on Fisher's campaign for the Pennsylvania governor's office. It can't be good for an Attorney General and potential governor to be seen as losing companies and jobs for the state and its residents.

Potential Bidders:

  • Nestle Foods is rumored to be considering a top-dollar bid for Hershey, a rumor fueled by frantic press speculation. On Monday, USA Today quoted unnamed sources as saying that Nestle had presented a preliminary bid of $82 to $85 a share, which helped push Hershey shares up 2.36 percent. News leaks about the possible offer have made Nestle, the world's largest food group "furious," as it sees them as an attempt to push up the price of any Hershey acquisition. Nestle is also thought to be interested in Pfizer Inc's Adams unit, which makes everything from Certs Mints to Trident gum, and says it wants back its U.S. KitKat business, currently made under license by Hershey, no matter who takes over Hershey Foods.
     
  • Kraft Foods has also asked for and received information about Hershey's finances, according to the Financial Times. Kraft is expected to be a front runner in a bidding war, along with Nestle, if legal arguments over the sale of the Hershey chocolate company are resolved at a hearing on September 3.
     
  • Cadbury Schweppes is another possible bidder, though Reuters has reported that they are leaning toward bidding only for any Hershey brands that might be divested, and concentrating on the Adams sale instead.
     

Any Hershey deal will likely not happen anytime soon because of U.S. political opposition to a deal and likely antitrust issues. A combined Nestle-Hershey business, for example, would control more than 50 percent of the U.S. chocolate confectionery market. And, on the sweet side, some people have expressed the concern that the company that buys Hershey could change the candy we've all been eating for years. Time to stock up on Hershey's kisses!




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2002 Kimberly & Albrecht Powell. Licensed to About.com.  All Rights Reserved.

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