The shares of Hershey Co (NYSE:HSY) are trading higher today following reports that Mondelez International (NASDAQLMDLZ) made a takeover bid.
Hershey’s stock price climbed more than 15% to $11.86 per share. Mondelez also gained more than 2% to $43.98 per share around 12:27 in the afternoon on Monday.
Deal will create the world’s largest confectioner
Market observers said a merger between Hershey and Mondelez will create the world’s largest confectioner, surpassing Mars Incorporated, the maker of M&M, Snickers, Milky Way and other chocolate brands; which accounts 13.3% of the global market based on data from Euromonitor International.
A person familiar with the matter told Bloomberg that Mondelez offered to acquire Hershey for $107 per share in cash (50%) and stock (50%) deal. The companies have been engaged in negotiations in recent months, but haven’t reached an agreement.
Mondelez plans to maintain the Hershey, keep jobs and expand its operations internationally, according to the person who requested anonymity because the information is private.
An earlier report by the Wall Street Journal indicated that Mondelez sent a letter Hershey expressing its interest this month.
Acquiring Hershey is a sensible move for Mondelez
Hershey is the maker of the Kisses chocolate brand, and it has a market value of around $24 billion. Last year, the confectioner generated nearly 90% of its revenue in North America—majority came from selling chocolates in the United States.
Mondelez is the maker of Oreo cookies and its market value is around $70 billion. The snack company will be able to balance its portfolio by acquiring the confectioner because its business is mostly focused overseas.
Jack Skelly, an analyst at Euromonitor, commented that a combination of Hershey and Mondelez “makes sense” from a “geographic perspective.” He also noted, “Mondelez has achieved its position as the second-largest confectionery manufacturer in the world without any sizable presence in the U.S.”
On the other hand, Bloomberg Intelligence analyst Ken Shea noted that Hershey family trust controls around 80% of the voting rights. It is uncertain whether it will approve a deal
“They control the company. If it’s a friendly deal, presumably they’ll have the trust on board,” said Shea.
Sanford Bernstein analyst Alexia Howard had a similar observation. She commented, “The Trust is outwardly very committed to keeping the company independent. So, it’s pretty much impossible for an activist to get involved or for the company to be bought.”
The Board of Directors of Hershey confirmed that Mondelez offered to acquire the company for $107 per share in cash and stock, but rejected it and “determined that it provided no basis for further discussion” between the companies.”