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Mondelez Approaches Hershey for Acquisition

6/30/2016
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The news that Hershey is the subject of a bid from Mondelez has certainly captured the imagination of those in the food industry. Yet rumours of an acquisition of Hershey have persisted for some time, suggesting the part public, part private business has been seriously considering selling. From a geographic perspective, the move makes sense. Mondelez has achieved its position as the 2nd largest confectionery manufacturer in the world without any sizeable presence in the US – the world’s largest chocolate confectioner market. Hershey sales are unlikely to cannibalise those of Mondelez’s elsewhere, with roughly 85% of its sales achieved in North America.

In addition, both companies appear to have similar ambitions to diversify into a range of snack products, having acquired a range of meat and gluten free snack manufacturers in recent years. Whilst hindsight is a wonderful thing, it could be that Hershey has been acquiring the likes of Brookside, Krave Jerky and barkTHINS in an effort to bolster its value ahead of such a move.

This is a highly ambitious move by Mondelez given the symbolic status of the Hershey brand in the US. The acquisition would reinstate Mondelez as the largest confectionery player in the world by some margin, with around 18% market share, and the 2nd largest packaged food manufacturer in the world, with 3% share of total sales. The Hershey brand generated US$2.5 billion in the US chocolate market in 2015; the company generated US$6.1 billion in the country’s chocolate market in 2015, resulting in a 30% market share.

It would not be the first time Mondelez has ruffled feathers with a traditional and iconic company, having controversially acquired UK manufacturer Cadbury in 2010. Hershey’s ownership structure may prove difficult to circumvent, due to the Hershey Trust which possesses 81% voting share on such bids. However, the Cadbury’s example proves that Mondelez is nothing if not dogged in its approach to such takeovers.

Hershey has established itself as a highly profitable snacks manufacturer, and this will appeal to Mondelez given the pressures the company’s CEO, Irene Rosenfeld, has been under from investors. In terms of next steps, Mondelez has shown that in a match between the traditions of a company and operating profits, the former loses. Cadbury is one such example, with many of its production sites being moved away from the United Kingdom. Furthermore, the company has made significant alterations to flagship Dairy Milk products – again with the aim of cost cutting - with much negative feedback from the public. This may happen once more to the Hershey’s brand.

Overall, however, this move does make sense for both companies, given the synergies in their focus on high growth, highly profitable snacks, their drive to improve efficiencies and their geographically complementary nature. Whilst shocking the industry, Mondelez’s move will start to make more sense from further away.

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