Three months after Mondelez shocked the world with the latest proposed mega-merger, when it offered $23 billion to acquire Pennsylvania's iconic Hershey, in a bid to make the world's biggest candy maker combining the candy industry’s second- and fifth-largest players by revenue, moments ago, the snack giant, which makes Oreo cookies and Cadbury chocolate bares, announced it was no longer pursuing the combination.
From the just filed press release:
Mondel?z International, Inc. today announced it has ended discussions with The Hershey Company regarding a possible combination of the two companies.
"As the world's leading snacking company, we remain focused on successfully executing our strategy to deliver both sustainable top-line growth and significant margin expansion and are well-positioned to continue to deliver value to our shareholders," said Chairman and CEO Irene Rosenfeld. "Our proposal to acquire Hershey reflected our conviction that combining our two iconic American companies would create an industry leader with global scale in snacking and confectionery and a strong portfolio of complementary brands. Following additional discussions, and taking into account recent shareholder developments at Hershey, we determined that there is no actionable path forward toward an agreement. While we are disappointed in this outcome, we remain disciplined in our approach to creating value, including through acquisitions, and confident that our advantaged platform positions us well for top-tier performance over the long term."
As the WSJ, which first broke the news of the proposed merger, wrote at the time, Mondelez, which had engaged in aggressive mergers in the recent past, was certain to face various obstacles: among other, it would require the approval of the Hershey Trust, which holds 8.4% of its common stock and 81% of its voting power and has opposed a sale in the past. In preparing its bid, which was disclosed in a private letter last week, Mondelez took steps to win over the trust. The Deerfield, Ill., company pledged to protect jobs, locate the merged company’s global chocolate headquarters in Hershey, Pa., and rename it Hershey, said a person familiar with the matter.
The Hershey Trust, established by the 122-year-old company’s late founder, Milton Hershey, is the biggest potential roadblock. The trust’s primary beneficiary is a school for underprivileged children in Hershey’s hometown.
Mr. Hershey was considered as much a philanthropist as an entrepreneur. As he built the chocolate company, he raised a town as well, erecting a bank, a department store, churches, golf courses, a zoo and a trolley system. Then, in 1909, he and his wife, Catherine, founded a school for orphan boys, now called the Milton Hershey School. Today the lavishly appointed private school serves disadvantaged children of both sexes.
The Pennsylvania attorney general was also investigating the trust’s board for alleged overpayment of directors and conflicts of interest, and the trust has said it is working with the attorney general’s office on the probe. This year, several of the directors have resigned, which could change the board’s attitude toward a possible sale. Indeed, a person familiar with the matter said the trust, which now includes some directors with Wall Street backgrounds, may now be more open to a deal.
Among the other potential hurdles for Mondelez: its bid could flush out other parties who might covet Hershey. Nestlé SA is one possibility. The Swiss food giant, which has a big chocolate business, licenses its KitKat brand to Hershey in the U.S. But Nestlé could face bigger antitrust issues in the U.S. if it were to try to buy Hershey. Nestle has the right to reclaim control of KitKat at no cost if someone else buys Hershey. That could reduce Hershey’s value to Mondelez by $3 billion, according to a person familiar with the matter.
It also wasn't clear how any any deal would be received in the town of Hershey, where streetlights along Chocolate Avenue are topped with giant Hershey kisses.
Then there was the purchase multiple, which valued the company at roughly a 30x P/E multiple.
Or perhaps it was simply "market conditions" - after all, the S&P failed to close at a new all time high.
Whatever the reason for the termination, this particular merger has now been pulled, much to the chagrin of merger arbs who are long the stock, as HSY was down12% after the news...