The board of directors of the Hershey Trust Company last night [Tuesday] voted to terminate the sale process of Hershey Foods as it emerged that the US candymaker was set to ink a US$12.5bn deal with compatriot gum maker Wrigley.
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The board decided against any sale last night after spending months reviewing diversification options. The trust, whose sole beneficiary is the Milton Hershey School for deprived children, had initiated the sale because it believed it needed to diversify its portfolio of holdings outside Hershey stock.
However, news of the proposed sale prompted a storm of protest from the local community. Mike Fisher, the attorney general for Pennsylvania, came on board and mounted a stiff legal challenge to any sale, securing a temporary injunction.
Reading a statement from the trustees last night, spokesman Rick Kelly said: “The trust board has rejected all the bids that it received. It is asking the company to end the process of exploring the sale.” He added, “This is the culmination of months and months of reviewing the diversification options.”
Sources close to the situation revealed that the board of Hershey was intending to meet today to sign a US$12.5bn deal with gum maker Wm. Wrigley, reported Dow Jones. Talks had been quietly proceeding between the two groups while media and investor attention had been elsewhere. A proposed joint bid by UK confectioner Cadbury-Schweppes and Swiss food giant Nestlé has been the main focus of speculation in recent weeks.
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By GlobalDataAny bid proposed by Cadbury and Nestlé would have resulted in Hershey being broken up and its brands and distribution rights being divided between the two groups. Meanwhile, the Wrigley bid had the advantage of keeping the company whole. Moreover, the gum-maker’s bid would have put paid to cynics who believed Wrigley lacked the financial firepower to buy Hershey, as it was offering to pay US$89 per share in stock and cash, valuing the company at US$12.5bn.
Wrigley is also reported to have agreed to a number of conditions that might make the deal more acceptable in the eyes of major stakeholders. The new company would have been known as Wrigley Hersheys, and the local plants would have been kept operating, thus easing the concerns of the local community which has been built up around the chocolate company.
The furore surrounding the sale is likely to have swayed a number of trustees who were in two minds. While the court injunction against the sale was unlikely to survive the legal process, it may have dampened the enthusiasm of potential bidders, as well as played on the minds of trustees and shareholders.
By the time the trust’s board met last night, it is believed that a clear majority of its members opposed the sale.
Nestlé today kept silent on the news, while investors expressed relief that it would not proceed with the expensive and potentially complex purchase. Nestlé stock was last trading up 1%, outperforming fellow food manufacturers on European stock exchanges.
While buying Hershey would have taken the Swiss group to the top of the US confectionery league, investors were clearly nervous about the deal. Concern had been expressed that Nestlé would lose its coveted triple A rating, which allows it to borrow more cheaply than lower-rated competitors. The group could well now return its full focus to negotiating the purchase of the Adams chewing gum unit which has been put on the market by its owner, US chemicals groups Pfizer.
