Mondelez International is reportedly mulling over acquiring Hershey, one of the world’s largest companies in the confectionery business. This was based on a Bloomberg News report on Monday, citing unnamed sources familiar with the preliminary discussions.
The potential deal would merge two chocolate titans, as Mondelez is valued at around $84 billion and Hershey at roughly $35 billion. Shares of Hershey immediately rose nearly 19% to $208.03 following the news, while Mondelez stock fell about 4% in morning trading.
Mondelez had also tried to buy Hershey in advance. It had tried a $23 billion buyout in 2016 that had to be withdrawn as Hershey has refused the deal. Sources further said that Hershey will react if there is overbidding of over $125 per share.
The potential merger occurs at an unfavorable time for the chocolate and packaged food industry. Both have seen sharp increases in input costs and more severe cocoa prices that led companies to increase prices and then experience weak consumer demand. Hershey lowered its earnings and revenue projections last week, a short time after the firm said it would reduce quarterly revenue of nearly $3 billion mainly due to unfavorable market conditions.
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Can Mondelez Conquer the U.S. Chocolate Market with a Hershey Takeover?
Mondelez, on the other hand, has outdone its competitors, posting close to 2% sales growth in its last quarter at $9.2 billion. It therefore provides strategic acquisition opportunities from a stagnant growth of the packaged food industry as depicted in the latest news release of Mars’s acquisition deal valued at $36 billion to Kellanova.
A successful acquisition would highly strengthen Mondelez’s foothold in the U.S. chocolate market. Hershey already leads the American market with a 36% market share as of 2022, followed by Mars at around 30%. Mondelez already boasts a stable portfolio of big brands across Europe, such as Cadbury and Milka, and would find sa ubstantial market presence in the United States.
The Hershey Trust Company is a charitable trust for the Milton Hershey School. It will hold the voting control of the company and would be very influential in any potential deal. Mondelez and Hershey have not commented on the reports of negotiations between them.
Will Chocolate Giants Merge Under a Trump Administration?
According to analysts, rising activity may be driven more so by expectations surrounding a possible Trump administration. Brian Jacobsen, chief economist at Annex Wealth Management said he cited increased confidence by executives about making deals.
“We are likely to see more of these types of announcements as executives become more confident that a Trump administration won’t pull the rug out from underneath tie-ups,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Financial metrics too have strategic importance. Based on LSEG data, Mondelez’s forward earnings multiple for the next 12 months was at 18.40 and Hershey’s at 21.61 which also came in handy in terms of negotiating strategies.
Although the talks are very preliminary, with no assurance of an eventual deal, it is still a big possible shift in the world of chocolate. It shows constant consolidation efforts since companies would have to go through demanding market conditions, increased costs, and the necessity to win more market share.
This early exploration will eventually evolve into a more formal acquisition proposal in the next couple of months, and investors and industry observers will be watching this closely.
