Why Hershey Rejected Mondelēz’s Acquisition Offer



Price movement of Hershey

The Hershey Company (HSY) has a market capitalization of $23.9 billion. It fell by 1.4% to close at $111.95 per share on July 1, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 14.3%, 20.7%, and 27.0%, respectively, on the same day.

HSY is trading 15.5% above its 20-day moving average, 19.6% above its 50-day moving average, and 24.4% above its 200-day moving average.

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Related ETFs and peers

The PowerShares S&P 500 Low Volatility ETF (SPLV) invests 0.95% of its holdings in Hershey. The ETF tracks a volatility-weighted index of the 100 least volatile stocks in the S&P 500. The YTD price movement of SPLV was 12.0% on July 1.

The iShares MSCI USA Quality Factor ETF (QUAL) invests 0.95% of its holdings in Hershey. The ETF tracks an index of US large- and mid-cap stocks, selected and weighted by high returns on equity, stable earnings growth, and low debt-to-equity compared to their peers.

The market capitalizations of Hershey’s competitors are as follows:

  • General Mills (GIS) — $42.8 billion
  • Mondelēz International (MDLZ) — $70.0 billion

Moody’s comment on Mondelēz’s offer

In a press release on June 30, 2016, Hershey stated, “The Hershey Company [HSY] today confirmed that it had received a preliminary, non-binding indication of interest from Mondelez International [MDLZ] to acquire the company for a mix of cash and stock consideration, totaling $107 a share of Hershey common stock. The indication of interest also included other non-monetary considerations.”

Hershey rejected this $23 billion offer from Mondelēz International. This transaction would have expanded Mondelez International’s business and created the world’s largest confectioner.

After Hershey received this offer, Moody’s Investors Service said that the preliminary, non-binding indication of interest from Mondelēz International was a credit negative. Moody’s also kept Hershey’s A1-P1 ratings and stable outlook unchanged.

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Hershey’s performance in 1Q16

Hershey reported 1Q16 net sales of $1.8 billion, a fall of 5.6% from net sales of $1.9 billion in fiscal 1Q15. It reported business realignment charges of $6.1 million in 1Q16, compared to $2.7 million in fiscal 1Q15.

From 1Q15 to 1Q16, due to the implementation of productivity and cost-saving initiatives, the company saved $16.6 million in unallocated adjusted corporate expenses.

Hershey’s net income and EPS (earnings per share) fell to $229.8 million and $1.06, respectively, in 1Q16, compared to $244.7 million and $1.10, respectively, in 1Q15.

From 4Q15 to 1Q16, Hershey’s cash and cash equivalents fell by 17.5%, and its inventories rose by 2.6%. Its current ratio fell to 0.76x, and its debt-to-equity ratio rose to 5.0x in 1Q16, compared to 0.83x and 4.1x, respectively, in 4Q15.


Hershey has made the following projections for 2016:

  • net sales growth of ~1.5%, including a net benefit from acquisitions and divestitures of ~0.5%
  • net sales growth of 2.5% on a constant-currency basis due to the unfavorable impact of ~1% from foreign currency exchange translations
  • reported EPS in the range of $4.16–$4.23
  • adjusted EPS in the range of $4.24–$4.28, including the barkTHINS dilution of $0.05–$0.06 per share

In the next part, we’ll discuss Toyota Motor (TM).


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