Mondelez Explores Acquisition of Hershey in $50 Billion Deal
Mondelez International, the snacks and sweets company, is exploring an acquisition of iconic US chocolate maker Hershey, in a potential deal that would create a food giant with combined sales of almost US$50 billion, according to sources familiar with the matter.
Preliminary Approach
Chicago-based Mondelez has made a preliminary approach about a possible combination, said the sources, who asked not to be identified because discussions are private.
Market Reaction
Shares in Hershey rose as much as 19 per cent on Monday (Dec 9) for their biggest intraday gain in more than eight years after the Bloomberg News report. The stock was trading up about 14 per cent at 12:49 pm in New York, giving the company a market value of US$40 billion. Mondelez fell 2 per cent, giving it a market capitalization of roughly US$82 billion.
Previous Deal Attempt
It’s not the first time Mondelez has sought a deal for Hershey. In 2016, it walked away from discussions about a potential takeover after seeing a US$23 billion bid rejected by the chocolate maker.
Hershey’s Value
Hershey has a value of roughly US$45 billion including debt, Bloomberg-compiled data show. That means a takeover of the Hershey, Pennsylvania-based company would top the value of the year’s biggest deal – snack maker Mars’s agreement to buy Kellanova for nearly US$36 billion including debt in August.
Hershey Trust’s Role
Any deal would require the backing of Hershey Trust, which owns almost all of Hershey’s Class B stock, giving it roughly 80 per cent of the voting power at the company. The trust has slowly been selling some of its Hershey shares in an effort to diversify its holdings. If Hershey Trust were supportive of a takeover, Hershey could attract interest from other suitors, the sources said.
Market Analysis
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.
Potential Suitors
Global snack powerhouses such as Nestle, which owns KitKat and Smarties, could be among the potential buyers of Hershey, according to Arun Sundaram, an analyst at CFRA Research.
Mondelez’s Acquisitions
Mondelez makes Ritz crackers and Oreo cookies as well as Toblerone chocolate bars. The company is "receptive to acquisitions" and has the debt capacity for M&A as it looks to expand its chocolate, biscuits, and baked snacks divisions, analysts at Bloomberg Intelligence wrote in September. The company in October reported third-quarter earnings that beat estimates.
Hershey’s History
Founded in the late 19th century, Hershey 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.
Conclusion
The potential deal would enhance Mondelez’s purchasing power in the cocoa market, helping it manage rising price pressures more effectively. It would also strengthen Mondelez’s access to the US market, leveraging Hershey’s robust brand presence in North America, while creating avenues for expansion into Europe.
FAQs
Q: What is the potential value of the deal?
A: The deal would create a food giant with combined sales of almost US$50 billion.
Q: How much is Hershey’s current market value?
A: Hershey’s current market value is around US$40 billion.
Q: Has Mondelez made a previous attempt to acquire Hershey?
A: Yes, in 2016, Mondelez walked away from discussions about a potential takeover after seeing a US$23 billion bid rejected by Hershey.
