(Bloomberg) — Mondelez International Inc., the snacks and sweets company, is exploring an acquisition of iconic US chocolate maker Hershey Co., in a potential deal that would create a food giant with combined sales of almost $50 billion, according to people familiar with the matter.
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Chicago-based Mondelez has made a preliminary approach about a possible combination, said the people, who asked not to be identified because discussions are private.
Shares in Hershey Co. rose as much as 19% on Monday for their biggest intraday gain in more than eight years after the Bloomberg News report. The stock was trading up about 14% at 12:49 p.m. in New York, giving the company a market value of $40 billion. Mondelez fell 2%, giving it a market capitalization of roughly $82 billion.
It’s not the first time Mondelez has sought a deal for Hershey Co. In 2016, it walked away from discussions about a potential takeover after seeing a $23 billion bid rejected by the chocolate maker.
Hershey Co. has a value of roughly $45 billion including debt, Bloomberg-compiled data show. That means a takeover of the Hershey, Pennsylvania-based company would top the value of the year’s biggest deal – snack maker Mars Inc.’s agreement to buy Kellanova for nearly $36 billion including debt in August.
Any deal would require the backing of Hershey Trust Co., which owns almost all of Hershey Co.’s Class B stock, giving it roughly 80% of the voting power at the company. The trust has slowly been selling some of its Hershey Co. shares in an effort to diversify its holdings. If Hershey Trust were supportive of a takeover, Hershey Co. could attract interest from other suitors, the people said.
Deliberations are in the early stages and there’s no certainty that discussions will lead to a deal, the people said. A representative for Mondelez declined to comment. A representative for Hershey Co. said the company doesn’t comment on market rumors. A spokesperson for Hershey Trust couldn’t immediately be reached for comment.
What Bloomberg Intelligence Says
Mondelez’s renewed interest in Hershey, based on a Bloomberg News report, could lead to a transformational deal that bolsters its global chocolate market share to over 21%. Yet there are hurdles: Hershey’s enterprise value is $45 billion vs. the $25 billion Mondelez offered in 2016 and its dual-class share structure makes approval from the Hershey Trust a must. FTC clearance may be another challenge, given the agency’s resistance to large deals.
— Jennifer Bartashus and Jibril Lawal, analysts
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The packaged-food industry has been grappling with declining volumes, slowing growth and a weakening global consumer. Companies are looking to innovation and new markets to bolster sales as shoppers start to push back on price hikes and become more health-conscious — a trend that could lead to consolidation.
Global snack powerhouses such as Nestle SA, which owns KitKat and Smarties, could be among the potential buyers of Hershey Co., according to Arun Sundaram, an analyst at CFRA Research.
Mondelez makes Ritz crackers and Oreo cookies as well as Toblerone chocolate bars. The company is “receptive to acquisitions” and has the debt capacity for M&A as it looks to expand its chocolate, biscuits and baked snacks divisions, analysts at Bloomberg Intelligence wrote in September. The company in October reported third-quarter earnings that beat estimates.
Founded in the late 19th century, Hershey Co. is known for its chocolate and candy brands including Hershey’s Kisses, Reese’s Peanut Butter Cups and PayDay. It expanded its sweets portfolio in November with an acquisition of Sour Strips.
The company, led by Chief Executive Officer Michele Buck, has been hit by record high cocoa prices, which have come down from their peaks but remain significantly elevated compared with prior years. Sugar costs are also high. Last month, Hershey Co. cut its outlook for net sales growth and earnings, as inflation-weary consumers watch their budgets. Its Chief Financial Officer Steve Voskuil has said that cocoa would be the “biggest piece” of the firm’s cost inflation in 2025.
New York cocoa futures had slumped for some time after peaking in April near $12,000 a ton but are back on the rise again, raising risks for chocolatiers that need to rebuild hedges and stockpiles. The most-active contract rose as much as 6.1% on Monday to $10,454 a ton, the highest intraday level since late April.
“The deal would enhance Mondelez’s purchasing power in the cocoa market, helping it manage rising price pressures more effectively,” said Randal Kenworthy, the consumer and industrial products practice lead at consulting firm West Monroe. “It would also strengthen Mondelez’s access to the US market, leveraging Hershey’s robust brand presence in North America, while creating avenues for expansion into Europe.”
–With assistance from Michelle F. Davis, Ruth David, Deena Shanker and Ilena Peng.
(Updates Mondelez’s comment, adds analyst comments and cocoa prices from seventh paragraph.)
