Mondelēz International, the owner of brands such as Cadbury and Oreo, is reported to have approached US chocolate maker Hershey about a potential buyout.
According to Bloomberg, the approach is still in the preliminary stages, and it is not certain that talks will lead to a transaction that would create a snack food giant with combined sales of almost $50bn (£39bn) a year.
Both Mondelēz, valued at around $84bn, and Hershey, with a market capitalisation of about $35bn, have yet to comment. Yesterday, shares in Hershey jumped by more than 10% on the news.
In 2016, Hershey rejected a $23bn takeover offer from Mondelēz. Any deal would need the approval of the Hershey Trust Company, a charitable trust that maintains voting control over the business. It has previously blocked the takeover of the firm, which makes brands such as Hershey’s Kisses and Reese’s Peanut Butter Cups.
Mondelēz’s chocolate brands, Cadbury and Milka, are top sellers in Europe, and a merger with Hershey would give it a much stronger presence in the huge US chocolate market. Hershey countrols around 36% of the US chocolate market, followed by Mars on about 30%.
The move comes as some major packaged food goods firms face slowing growth as consumers cut back after years of rising prices. Chocolate companies, in particular, have faced significantly higher ingredients costs, which they have had to pass on to shoppers.
Last month, Hershey cut its revenue and profit forecasts, with its CFO Steve Voskuil warning that high cocoa prices will be the “biggest source of inflation” for the firm going forward. In contrast, Mondelēz recently posted better-than-expected quarterly results as efforts to provide its products at different price points drove an improvement in sales volumes.
Some companies have sought mergers to boost growth. In August, confectionery giant Mars struck a deal to acquire Pringles and Kellogg’s cereal maker Kellanova for almost $36bn.
NAM Implications:
- Despite impediments (Hershey Trust Company, Competition Authorities possibly)…
- …the deal would benefit both companies in terms of scale and geographical coverage.
- Time for rivals to explore implications.
- Anticipate some brand offloads to facilitate Authorities agreement…
