Hershey Trust Emerges As Key Player In Candy Wars
01 October 2009 - 4:07AM
Dow Jones News
An obscure charitable trust will be a central figure as the
candy wars unfold and as Kraft Foods Inc. (KFT) weighs its next
step in the bid for Cadbury PLC (CBY).
As the candy industry consolidates, the Hershey Trust -
controlling shareholder of the publicly traded Hershey Co. (HSY)
and trustee of a school for children in need - must decide the
Pennsylvania chocolate maker's future.
The six-week deadline issued Wednesday by the U.K. takeover
panel to Kraft could also pressure other potential bidders to show
their hand. Hershey has long been seen as a potential takeover
candidate and more recently as even a potential bidder for Cadbury,
but the trust's control and its unusual structure would make it
difficult for the company to see a deal through.
The trust - which has roughly $7 billion in assets - oversees a
school for needy children that is funded partly by Hershey Co.
dividends. The trust's goal of safeguarding the future of that
charity is likely to override other considerations. That would
limit the trust's interest in jumping into a deal, particularly one
that would dilute its control over Hershey or one that would expose
the company's balance sheet to any kind of risk.
Hershey Co. and the trust have stayed mum. While analysts
haven't completely dismissed a possible bid for Cadbury, many see
that as unlikely given the trust's presence and the company's
relatively smaller size. The absence of a counterbidder like
Hershey would increase Kraft's bargaining power.
Soleil Securities analyst Ed Roesch says Cadbury may not make
sense for Hershey, which would likely have to spend heavily to get
the deal done and would probably need a partner like Nestle SA
(NESN.VX). There is a chance that Hershey could wait for a more
formal offer from Kraft before making its move, he said, although
he sees Hershey as an unlikely bidder.
Unlike a typical shareholder, the trust's interests lie in
ensuring the stability of a steady flow of income from Hershey. And
a Kraft acquisition of Cadbury would be unlikely to have a drastic
impact on Hershey's U.S. business right away, says Stifel Nicolaus
analyst Chris Growe. "The [Hershey] dividend should continue to
grow for the foreseeable future," he says.
Kraft and Cadbury aren't the only issues at hand for the Hershey
Trust. As financial markets have tumbled, the trust has seen its
assets drop, falling to $7.3 billion in August 2008 from $8.2
billion a year earlier. Regulatory filings from earlier this year
show a series of other stock investments ranging from Apple Inc.
(AAPL) to Coca-Cola Co. (KO), although its holdings of Hershey
stock far overshadow any other investments. The trust holds roughly
a third of Hershey shares, but has nearly 80% of the voting
control.
Milton Hershey, founder of the namesake company left his fortune
to the trust - mostly in the form of the chocolate company's stock
- and charged it with helping as many needy children as possible in
perpetuity through the Milton Hershey School. Hershey Trust
spokesman Tim Reeves said the trust has in the past said it will
retain its controlling interest in the Hershey company, and that
remains its policy.
Unlike family trusts that are entangled with the fortunes of
publicly traded companies, there are no members of Milton Hershey's
family who directly work with the trust. Hershey and his wife had
no children. Today, the trust's board of directors is a mixed
group, and includes a retired publisher of the Patriot News Co., a
past chairman of the Federal Reserve Bank of Philadelphia, and a
former alumnus of the school who now runs a chain of
restaurants.
In 2002, the trust pulled out at the last minute on a possible
sale of Hershey Co. to Wm. Wrigley Jr. Co. after a stirring round
of protests from the local community. That thinking could play out
once again.
- By Anjali Cordeiro; Dow Jones Newswires; 212-416-2200;
anjali.cordeiro@dowjones.com