This article has been reproduced with the permission of Dow Jones
Company. These materials have been made available electronically
solely for use by students in Dr. Alisher Akhmedjonov’s ECON 5315:
Managerial Economics for the duration of the Fall2018 semester. These
materials may not be further distributed to any person outside of the
class, whether by copying or by transmission and whether electronically
or in paper form.
Citations
Jeffrey Sparshott and Georgi Kantchev, Oil Prices Poised to Hit Sweet Spot for Global Economy, The
Wall Street Journal, viewed online on August 29, 2016
Robbie Whelan, Trucking Company Failures on the Rise, The Wall Street Journal, viewed online on
August 29, 2016
Liz Hoffman, Dana Mattioli and Dana Cimilluca, Snack Giant Mondelez Makes $23 Billion Takeover
Bid for Hershey, The Wall Street Journal, viewed online on August 29, 2016
Annie Gasparro, Sales Pressure on Mondelez, Hershey Could Bolster Case for Merger, The Wall Street
Journal, viewed online on August 29, 2016
Ryan Knutson and Deepa Seetharaman, Verizon Agrees to Buy Yahoo’s Web Assets for $4.83 Billion,
The Wall Street Journal, viewed online on August 29, 2016
Lilian Lin, ‘The Great Wall’ Trailer is Out: Matt Damon and Chinese Soldiers Battle Monsters, The Wall
Street Journal, viewed online on August 29, 2016
Sara Randazzo and Mike Spector, Volkswagen to Pay Up to $14.7 Billion to Settle Diesel-Emissions
Claims, The Wall Street Journal, viewed online on August 29, 2016
Jack Ewing and Hiroko Tabuchi, Volkswagen Scandal Reaches All the Way to the Top, Lawsuits Say,
The New York Times, viewed online on August 29, 2016
Kelsey Gee and Julie Wernau, A Cheese Glut is Overtaking America, The Wall Street Journal, viewed
online on August 29, 2016
Leo Lewis, ‘Pokémon Go’ shows Nintendo the promise of mobile, The Financial Times, viewed online
on August 29, 2016
John W. Miller, Alcoa Details Plans to Split into Two Companies, The Wall Street Journal, viewed online
on August 29, 2016
Laura Stevens, UPS Boosts Commitment to 3D On Demand Printing, The Wall Street Journal, viewed
online on August 29, 2016
David Gelles, Taser International Dominates the Police Body Camera Market, The New York Times,
viewed online on August 29, 2016
Holman W. Jenkins, Jr., That Slow Hissing Sound? The Jet Bubble, The Wall Street Journal, viewed
online on August 29, 2016
Ryan Knutson, Verizon to Raise Monthly Wireless Plans by up to $10 a Month, The Wall Street Journal,
viewed online on August 29, 2016
Justin Lahart, Wal-Mart Joins Amazon in Squeezing Retail Rivals, The Wall Street Journal, viewed
online on August 29, 2016
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BUSINESS
Snack Giant Mondelez Makes $23
Billion Takeover Bid for Hershey
Hershey rebuffs bid aimed at creating the world’s biggest candy company
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Hershey Kisses move along the production line at the West Hershey plant in Hershey,
By LIZ HOFFMAN, DANA MATTIOLI and DANA CIMILLUCA
Updated June 30, 2016 8:08 p.m. ET
Mondelez International Inc. made a roughly $23 billion bid for Hershey Co. in an
effort to create the world’s largest candy maker at a time when both companies’
sales are under pressure.
Mondelez, which makes Oreo cookies and Cadbury chocolate bars, recently sent
a letter to Hershey proposing a tie-up at $107 a share, half in cash and half in
stock. Hershey’s board unanimously rejected the bid Thursday and said it
“provided no basis for further discussion.”
Still, Hershey shares surged 17% to $113.49 on news of the offer—first reported by
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The Wall Street Journal—remaining elevated even after the company rejected the
bid, in an indication investors believe Mondelez won’t be discouraged. Mondelez
shares gained 6% to $45.51, giving the snack giant a market value of more than
$70 billion.
RELATED COVERAGE
The Latest Chapter in the Storied History of Kraft, Mondelez (http://blogs.wsj.com/moneybeat/2016/06
/30/the-latest-chapter-in-the-storied-history-of-kraft-mondelez/)
Heard on the Street: Mondelez and Hershey: The Hunter Could Be the Prey (http://www.wsj.com/articles
/mondelez-and-hershey-the-hunter-could-be-the-prey-1467322668)
Hershey Gets Sweet on Dried Meat Bars (http://www.wsj.com/articles/hershey-gets-sweet-on-driedmeat-bars-1461630648) (April 25)
Activists Put Mondelez CEO Irene Rosenfeld on the Spot (http://www.wsj.com/articles/two-activists-put-oneceo-on-the-spot-1450230598) (Dec. 15)
Hershey Discovers Sweet Taste of Losing (http://www.wsj.com/articles
/SB10001424052748704893604576200832322228372) (March 15, 2011)
Cadbury, Hershey Directors Hold Talks (http://www.wsj.com/articles
/SB10001424052748704842604574642611456134996) (Jan. 6, 2010)
How Hershey Went Sour (http://www.wsj.com/articles/SB120372795014787393) (Feb. 23, 2008)
Hershey Trust Will Meet, Weigh Alternatives to Sale (http://www.wsj.com/articles
/SB1031776830853233435) (Sept. 16, 2002)
Hershey Foods Is Considering A Plan to Put Itself Up for Sale (http://www.wsj.com/articles
/SB1027561165960914640) (July 25, 2002)
A takeover of Hershey, known for its namesake Kisses and chocolate bars, would
face obstacles. Any deal 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.
A spokesman for the trust, whose board includes three Hershey directors,
declined to comment.
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.
A Mondelez-Hershey merger would bring together the candy industry’s secondand fifth-largest players by revenue, according to research firm Euromonitor.
Mondelez is second only to Mars Inc.
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The union would be expected to face little resistance from antitrust authorities,
as Mondelez doesn’t have its own presence in the U.S. chocolate market.
Hershey, which makes the Cadbury chocolate sold in the U.S. under a licensing
deal with Mondelez, has a limited presence outside the U.S.
Among the 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.
Nestlé 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.
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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.
Over a decade ago, chewing-gum maker Wm. Wrigley Jr. Co., now a unit of the
privately held Mars, tried to buy Hershey, but resistance from the trust scuttled
the deal at the last minute. A joint bid from Nestlé and what was then Cadbury
Schweppes was also rejected.
The Pennsylvania attorney general is 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.
It also isn’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.
Hershey had sales of $1.8 billion in the first quarter, a 5.6% decline from the
year-earlier period, in part because of adverse currency moves. In 2015, the
company had sales of $7.4 billion and earnings of $513 million. The company has
about 80 brands, and has recently moved to court more health-conscious
consumers.
Mondelez, based in Deerfield, Ill., had sales of $29.6 billion in 2015, down 14%
from a year earlier, also partly due to currency swings. In the first quarter, its
revenue fell nearly 17% to $6.5 billion, amid pressure on its coffee business.
Mondelez has a complicated deal-making history. The company is the product of
a 2012 separation from Kraft Foods Inc., which had been under pressure from
8/29/2016 2:07 PM
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MARKET TALK
Finally the Time for Hershey to Get Hitched? Hershey has long been Wall
Street’s wish as a takeover play. Problem is the candy giant’s ownership
structure as the company is controlled by the Hershey Trust, which hasn’t
been enthused over the years with selling out. But it also has made
dissatisfaction known the past decade in driving changes both in director
membership and the executive suites. Shares have been trading sideways for
more than 2 years, so perhaps selling out might seem a little a little sweeter
now. Hershey spikes to record highs on the WSJ report.
(kevin.kingsbury@wsj.com; @kevinkingsbury)
Hershey Trust Looms Large Over Mondelez Bid. Mondelez or any other
suitor could want Hershey all the want. But approaches go nowhere if the
company’s controlling shareholder doesn’t oblige. A trust established by
founder Milton Hershey more than a century ago controls about 77% of
Hershey’s voting power, and it has been reluctant to sell in the past. In 2002,
it scuttled a planned merger with Wrigley, and there are some legal
restrictions on sales of Hershey stock. (liz.hoffman@wsj.com;
@lizrhoffman)
Should Mondelez Eat or Be Eaten? Mondelez making an approach to
Hershey is likely to surprise some who eventually expected Mondelez to be
more of a target than a buyer. William Ackman originally poured $5.5 billion
into Mondelez, though he pared that recently and now holds a 5.6% stake.
There’s been speculation Mondelez would fit well back with Kraft Heinz
under the control of cost-cutting Brazilian billionaires 3G. Meanwhile, Trian
and Nelson Peltz, who now has a Mondelez board seat, had been urging a
combination with Pepsi snack arm Frito Lay. But swallowing Hershey, now
sporting a $24 billion market cap with today’s 18% bounce, would make
Mondelez a mouthful and possibly raise eyebrows among those looking for a
sale. (david.benoit@wsj.com; @DaveCBenoit)
Deal Would Join Two Top Five Confectionery Makers. WSJ reports that
Mondelez made a takeover approach to Hershey this month. That deal would
bring the world’s second and fifth largest confectionery companies under one
roof, according to research firm Euromonitor. Mondelez ranks as the world’s
second-largest confectionery maker, after Mars. Hershey is the world’s fifth
largest. Nestle and Ferrero are the third and fourth largest confectionery
companies in the world, respectively.(dana.mattioli@wsj.com;
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@DanaMattioli)
Market Talk is a stream of real-time news and market analysis that is available
on Dow Jones Newswires.
Trian Fund Management LP and other activist investors. That came only two
years after Kraft had acquired the U.K. chocolate company Cadbury PLC for $19
billion, and the chocolate assets went with Mondelez in the separation.
When Kraft bought Cadbury in 2010, it promised it would protect jobs in the U.K.
and keep open a factory there. Within months, it announced it would close that
plant after saying it had learned new information about its profitability. The
U.K.’s Takeover Panel criticized the company and its bankers for the reversal.
Last year, William Ackman’s Pershing Square Capital Management LP disclosed a
7.5% stake, worth $5.5 billion at the time, betting the company would become a
target, rather than an acquirer, in a coming wave of consolidation in the snack
industry. Mr. Ackman recently trimmed the Mondelez stake to 5.6% including
options.
Trian also has a 3% Mondelez stake and the firm’s co-founder, Nelson Peltz, is on
the snack company’s board.
Trian in 2013 unveiled stakes in PepsiCo Inc. and Mondelez and began pushing
for a merger of the two to be followed by a spinout of Pepsi’s beverage business.
Pepsi rejected the idea, and Trian dropped its call for a merger when Mr. Peltz
joined Mondelez’s board in 2014.
—David Benoit and Annie Gasparro contributed to this article.
Write to Liz Hoffman at liz.hoffman@wsj.com, Dana Mattioli at
dana.mattioli@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and David
Benoit at david.benoit@wsj.com
8/29/2016 2:07 PM
This article has been reproduced with the permission of Dow Jones
Company. These materials have been made available electronically
solely for use by students in Dr. Alisher Akhmedjonov’s ECON 5315:
Managerial Economics for the duration of the Fall 2018 semester. These
materials may not be further distributed to any person outside of the
class, whether by copying or by transmission and whether electronically
or in paper form.
Citations
Jeffrey Sparshott and Georgi Kantchev, Oil Prices Poised to Hit Sweet Spot for Global Economy, The
Wall Street Journal, viewed online on August 29, 2016
Robbie Whelan, Trucking Company Failures on the Rise, The Wall Street Journal, viewed online on
August 29, 2016
Liz Hoffman, Dana Mattioli and Dana Cimilluca, Snack Giant Mondelez Makes $23 Billion Takeover
Bid for Hershey, The Wall Street Journal, viewed online on August 29, 2016
Annie Gasparro, Sales Pressure on Mondelez, Hershey Could Bolster Case for Merger, The Wall Street
Journal, viewed online on August 29, 2016
Ryan Knutson and Deepa Seetharaman, Verizon Agrees to Buy Yahoo’s Web Assets for $4.83 Billion,
The Wall Street Journal, viewed online on August 29, 2016
Lilian Lin, ‘The Great Wall’ Trailer is Out: Matt Damon and Chinese Soldiers Battle Monsters, The Wall
Street Journal, viewed online on August 29, 2016
Sara Randazzo and Mike Spector, Volkswagen to Pay Up to $14.7 Billion to Settle Diesel-Emissions
Claims, The Wall Street Journal, viewed online on August 29, 2016
Jack Ewing and Hiroko Tabuchi, Volkswagen Scandal Reaches All the Way to the Top, Lawsuits Say,
The New York Times, viewed online on August 29, 2016
Kelsey Gee and Julie Wernau, A Cheese Glut is Overtaking America, The Wall Street Journal, viewed
online on August 29, 2016
Leo Lewis, ‘Pokémon Go’ shows Nintendo the promise of mobile, The Financial Times, viewed online
on August 29, 2016
John W. Miller, Alcoa Details Plans to Split into Two Companies, The Wall Street Journal, viewed online
on August 29, 2016
Laura Stevens, UPS Boosts Commitment to 3D On Demand Printing, The Wall Street Journal, viewed
online on August 29, 2016
David Gelles, Taser International Dominates the Police Body Camera Market, The New York Times,
viewed online on August 29, 2016
Holman W. Jenkins, Jr., That Slow Hissing Sound? The Jet Bubble, The Wall Street Journal, viewed
online on August 29, 2016
Ryan Knutson, Verizon to Raise Monthly Wireless Plans by up to $10 a Month, The Wall Street Journal,
viewed online on August 29, 2016
Justin Lahart, Wal-Mart Joins Amazon in Squeezing Retail Rivals, The Wall Street Journal, viewed
online on August 29, 2016
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1 of 5
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BUSINESS
Sales Pressure on Mondelez, Hershey
Could Bolster Case for Merger
Quarterly results are expected to show both companies continue to grapple with changing
consumer tastes
Continued sales pressure on Mondelez International and Hershey could bolster some arguments that the two
snack giants could benefit from joining forces. PHOTO: ASSOCIATED PRESS
By ANNIE GASPARRO
July 26, 2016
Rival snack makers Mondelez International Inc. and Hershey Co. are both
expected to show continued sales pressure when they report quarterly earnings
this week, bolstering some arguments that the two giants could benefit from
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joining forces.
Mondelez made a bid to acquire Hershey at the end of June, and it was
unanimously rejected by the chocolate company’s board of directors. But
Mondelez, whose brands include Oreo cookies, hasn’t dropped its pursuit of
Hershey, and could raise the offer if it sees an opening, two people familiar with
the matter have said.
Wall Street will likely scrutinize comments by Mondelez Chief Executive Irene
Rosenfeld, who is scheduled to speak to with analysts on Wednesday, when the
company is expected to report earnings. Ms. Rosenfeld is typically tight-lipped
when it comes to acquisition activity, but ongoing pressure from activist
investors could prompt her to share insight into Mondelez’s strategy.
Revenue is expected to be $6.34 billion, down 17% from the same period last year,
according to consensus estimates from Thomson Reuters.
Both Mondelez and Hershey are grappling with changing consumer tastes
toward healthier and more natural foods, and in some cases the trend has sent a
few companies in search of deals that help them reduce overall costs.
Last year’s megamerger of Kraft Foods Group Inc. and H.J. Heinz Co. was
intended to help the packaged food conglomerates save on overhead expenses,
supply chain and distribution costs. The combined company, Kraft Heinz Co.,
has posted double-digit increases in profits in recent quarters, despite continued
sales declines.
David Palmer, an analyst at RBC Capital Markets, said the appeal for Mondelez to
buy Hershey lies in the money the combined company could save by pooling
resources and ingredient purchasing.
Mondelez could also profit from expanding overseas the Hershey brands, which
also include Reese’s peanut butter cups and Twizzlers, as they are heavily
concentrated in the U.S.
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“Many of Hershey’s brands have global brand recognition and distribution
upside,” he said,
Others make the case that Mondelez shouldn’t further invest in sugary snacks in
the slow-growing U.S. market, while noting that Hershey’s unique ownership
structure, which gives final say to a charitable trust, makes a deal unlikely.
One of Mondelez’s biggest shareholders, Pershing Square, has said it is wary of a
deal to buy Hershey, since the chocolatier is largely concentrated in the U.S., and
an acquisition could derail Mondelez’s focus on cost-cutting.
“We do have a question as to what Hershey’s growth rate is in the future and
whether it would be better for Mondelez to invest more in its emerging markets,”
Pershing Square’s Ali Namvar, a member of the investment team, said on a recent
conference call.
Bernstein analyst Alexia Howard agreed that an acquisition of Hershey would be
“strategically unsound” for Mondelez. “Our strongly held view that health and
wellness trends will play a key part in the U.S. food industry’s future makes us
naturally skeptical of this transaction,” she said.
Hershey has said its sales and profit for the year will be lower than expected as its
chocolate bars struggle to compete with newer snacks like fruit-and-nut bars
considered by many consumers to be healthier.
Analysts expect Hershey’s revenue to be up 2% at $1.61 billion, and earnings to be
flat at 78 cents a share when the company provides its quarterly update on
Thursday morning.
Shareholders of both Hershey and Mondelez have benefited from the latest deal
talks. As of Tuesday afternoon trading, Hershey’s shares had risen 13% since
news of the offer, while Mondelez’s shares have risen 5%.
However, the market could pull back if earnings don’t meet their targets or the
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companies further trim their outlooks for the year.
On Wednesday, Mondelez will likely provide updates on sales in China, Brazil
and Russia, where its Cadbury chocolates and Prince cookies have taken a hit
recently. Mondelez, with its vast global reach, has become a good indicator of
disposable income in emerging markets.
Typically, snacks are considered an affordable indulgence, making them some of
the last foods to be hurt by difficult economic times, Ms. Rosenfeld said in an
April interview. Yet, the impact of economic uncertainty has now trickled down
to the candy aisle.
—David Benoit contributed to this article.
Write to Annie Gasparro at annie.gasparro@wsj.com
Corrections & Amplifications:
An earlier headline on this article incorrectly spelled Mondelez’s name as
Modelez. (Aug. 2, 2016)
8/29/2016 2:08 PM
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