In what could have been the largest confectionery merger of the year, Mondelez’s $46 billion bid for Hershey, known for its iconic Hershey’s Kisses and Reese’s, was rejected. The firm has consistently rejected Mondelez’s acquisition attempts, citing the offers insufficient such as the $23 billion bid in 2016. The current proposed bid is valued at approximately $46 billion and would have been the biggest merger of 2024 according to Bloomberg.
The motivations behind the rejection of the deal may not be purely financial. The controlling shareholder of Hershey - the Hershey Trust - has created a legacy for its founder, Milton Hershey and has a large presence in philanthropy. The trust serves the Milton Hershey School for low-income children and the M.S. Hershey Foundation. The Trust's governance structure prioritises community and legacy preservation over traditional shareholder returns, influencing Hershey's strategic decisions in ways that often diverge from industry norms. The Trust was also the reason behind the rejection of 2016.
The proposed merger reflects broader trends in the highly concentrated chocolate industry. Mondelez’s valuation of $84 billion positions it as a significant player in the chocolate industry, owning brands such as Cadbury’s, Milka and Toblerone. Both Mondelez and Hershey could be said to be in the top five firms of the chocolate industry, with the likes of Ferrero International, Mars Inc and Nestle. The chocolate industry has a high concentration ratio and the potential merger would have created one of the largest confectionery companies in the world with a combined market value of almost $120 billion. This deal would surpass the Mars-Kellanova transaction.
For the confectionery industry, rising costs for raw materials and operations is at the forefront for chocolate makers. Cocoa futures experienced a significant increase of almost 5.5% to $11,925 per ton on Monday, surpassing the prior record of $11,722 in April. Firms like Mars Inc have already decreased the size of their chocolate bars last year, with a weight reduction of ten grams per galaxy bar. Such industry challenges and cost inflation could be driving Mondelez’s merger plans.
The strategic alignment of the two firms may lead to significant profitability growth. The combination of operations could lead to revenue synergies, cost savings as well as scale and efficiency gains. Hershey has a strong profitability, with net profit margins of 16.68% which could potentially enhance Mondelez’s margin of 13.77%. A merged entity would enhance their market position and pricing power which would allow for potential offsetting of cost inflation. The firms would also benefit from supply chain integration and shared innovation.
Despite the strategic advantages of a merger, Mondelez has shifted its focus to other growth strategies in the wake of Hershey’s decision. Mondelez has authorised a stock buyback plan worth up to $9 billion which will begin on the 1st of January and replace the current $6 billion buyback plan. Following the rejection of the deal, it has pivoted its capital allocation strategies to “Bolt-on assets” which emphasises small acquisition deals such as its past acquisition of Chipita, Clif and Ricolino, all of which were under a $3 billion valuation. While the Hershey Trust’s rejection has halted Mondelez’s ambitions for now, the chocolate industry’s challenges will continue to drive consolidation and innovation. Whether through smaller acquisitions or revisiting larger-scale mergers, Mondelez’s strategic pivots will shape its path forward in an evolving market.
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