Rejected Mondelez-Hershey Deal Could Have Recast Global CPG Industry

Posted June 30, 2016 by Dale Buss

Whether this is another urgent consolidation move within Big Food to cope with seismic industry changes or a way to take a huge new step into a  bright future—or both—Mondelez has shaken up the food and beverage business today with reports of its offer to acquire Hershey.

According to the Wall Street Journal, the parent of Oreo, Cadbury and other major global confectionery and snack brands made a $23 billion takeover bid for Hershey—$107 a share—with the deal comprised half in stock and half in cash. The report goosed Hershey stock.

Hershey, however, issued a press release stating: “The Board of Directors of The Hershey Company unanimously rejected preliminary, non-binding indication of interest from Mondelez Company.” It went on to say Hershey “determined that it provided no basis for further discussion between Mondelēz and the Company.”

If the deal were to go through, according to the Wall Street Journal, Mondelez reportedly pledged to protect jobs in the event of a merger, locate its headquarters in Hershey, Pennsylvania, and actually rename the company Hershey.

Such a combination could accomplish a few things.

Mondelez’s market capitalization, at about $68 billion, is nearly three times that of Hershey, at $25 billion—but the companies and their brands are complementary, with relatively little overlap. Yes, Cadbury is candy and so is Hershey, but they fit well geographically. Mondelez is strong globally and in cookies, with Oreo, while Hershey, of course, is the epitome of chocolate, along with Mars, and is an iconic snack provider in the US.

Each traditional “junk food” company also has made major strides in shifting their portfolios and concerns to the better-for-you trend in the market.

Mondelez, for example, has innovated with new brands such as BelVita, a breakfast biscuit that includes complex carbs for long-burning energy release and, more recently, a “free-from” cracker brand called Good Thins. Meanwhile, Hershey has taken a strong tack toward more nutritional fare by, for instance, acquiring the Brookside brand of fruit-and-nut bars and by readying to launch its own new brand of fruit-and-protein products, called SoFit.

Both Hershey and Mondelez also have devoted considerable resources, and much of their positioning and branding lately, to making their global supply chains more “sustainable” in terms of both environmental improvements and in the treatment of cocoa farmers and other suppliers. Among other things, such moves give each company more appealing stories to tell western millennial consumers who are greatly concerned about such corporate social responsibility considerations.

Interestingly, of course, Mondelez was created by a split of the old Kraft Foods conglomerate, in 2012, with its new sibling hanging on to the US grocery business and brands such as Oscar Mayer and Jell-O. But by 2013, activist investors such as Nelson Peltz were agitating for Mondelez to acquire the Frito-Lay snack business from PepsiCo.

Then, last year, Kraft was acquired by Heinz as cost pressures, slow growth in the CPG industry, shareholder agitation and uncertain global economies prompted their combination.