Hershey Foods May Be Sold
July 1, 2015 | Peter J. LaBella, CFP®
As Published by the Business Journal Daily
Hershey Foods Corp. startled workers, residents and shareholders in Derry Township, Dauphin County, this morning with news that the chocolate maker is up for sale.
“For Hershey to be owned by anybody else would be unbelievable to me,” said Victor Hetrick, 62, a retired Derry Township resident.
He worked in the human resources department at Hershey Foods from 1967 to 1977. “I guess anything’s possible today,” he said.
The potential sale, first reported by The Wall Street Journal, stems from investment decisions of the Milton Hershey School Trust, which holds a controlling interest in Hershey Foods, one of the largest companies in Central Pennsylvania. At midday, the company’s stock jumped from around $62 to more than $75.
The trust said it wanted to diversify its assets, about half of which are tied up in Hershey Foods stock. The trust supports the Milton Hershey School, which was founded by company founder Milton Hershey in 1909 to house and teach disadvantaged children.
In a statement, the company said its board of directors offered alternatives to a sale, but it has acceded to the trust’s wishes. The trust controls 77 percent of voting power in the company.
Few people foresaw that the trust would ever give up its hold on Hershey Foods, which built the small town that grew up around it.
“We never, never thought that we would see anything like this,” said one elderly stockholder who did not want to be identified. “We never thought that they would do that.”
Workers, recently returned from a six-week strike against the company, also were blindsided by the news.
“Milton Hershey built this town and he built this place to share the wealth with the school,” said Sandi Yacklovich, a worker taking a break outside the company plant on Chocolate Avenue in downtown Hershey. She and other workers didn’t think the strike, the longest in company history, influenced the trust’s decision.
The company’s profit margins have been disappointing in recent years, said Peter LaBella, a principal in investment advisory FMA Advisory Inc., Harrisburg. But the stock has done well, even in the current market downturn.
“This is a consumer staple,” LaBella said. “Chocolate bars sell in recessions and during depressions and in all sorts of turmoil.”
LaBella questioned whether the Hershey trust would do better through diversification, though that has been the strategy recommended to the average U.S. investor.
“This isn’t the average investor,” LaBella said. “This is a quality company, and Warren (Buffett) would tell you, ‘If I own the company, I control my destiny. If I own a great product within a great company, I truly control my destiny.’ They (the trust) own a truly great company with a truly great product.”
Potential buyers include New York-based Philip Morris Cos. Inc., Illinois-based Kraft Foods Inc. and Swiss candy maker Nestlé, LaBella said. The price would be around $10 billion at current market value.
However, he said, any sale would be bad for Central Pennsylvania, which has lost other public companies to mergers, most notably AMP Inc., which was bought by Tyco International Ltd. in 1999. Anyone buying Hershey would be under pressure to cut costs.
“I’m hoping that’s not the direction we’re going in because we have a great community citizen here who supports our community and our charities,” LaBella said. “It would be sorely missed.”
For financial and legal advice, Hershey Foods has retained the firms Sullivan & Cromwell and UBS Warburg. Warburg helped York International Corp. when that Central Pennsylvania company was considering a sale.
The Hershey trust has hired law firm Skadden Arps Slate Meagher & Flom and investment bank Morgan Stanley.