Following news that Mondelez International, the owner of UK-based Cadbury, had approached the firm about a possible purchase, shares of Hershey, the well-known US chocolate manufacturer, rose by more than 10%. If the transaction is approved, a snack food giant with yearly sales of around $50 billion (£39.2 billion) may be created.
How Would a Merger Affect the Snack Sector?
The merger would combine some of the world’s best-known snack and candy companies if successful. Classics like Reese’s Peanut Butter Cups and Hershey’s Kisses are part of Hershey’s portfolio, whereas Cadbury Dairy Milk, Ritz crackers, Oreo biscuits, and Toblerone chocolate are owned by Mondelez.
Hershey and Mondelez, meanwhile, chose not to respond to the reports. Sources claim that talks are still in their early phases, and there is no assurance that they will lead to a final agreement.
Why Did Hershey Previously Turn Down Mondelez?ffect the Snack Sector?
Mondelez’s interest in Hershey has been around for a while. 2016 the US chocolate manufacturer turned down Mondelez’s $23 billion merger bid. Opposition from the Hershey Trust Company, a benevolent trust with voting authority over the company, played a significant role in that decision.
According to a market expert, “The Hershey Trust Company has a history of protecting the firm’s independence and could once again block a deal.”
What Difficulties Does the Chocolate Industry Face?
Due to price increases brought on by inflation, the packaged food industry has seen halting growth, which has left many customers feeling the squeeze. Chocolate manufacturers have found it easier to raise the price of cocoa by lowering consumer demand.
Citing rising cocoa prices as the “biggest source of inflation” in the future, Hershey recently lowered its revenue and profit projections. During a recent earnings call, the company’s CFO stated, “We’re navigating unprecedented cost pressures.”
Following many price increases, consumers have begun to reduce their purchases, and Kraft Heinz recently lowered its yearly sales and profit expectations.
Why Is the Food Industry Seeing an Increase in Mergers?
The potential Hershey-Mondelez merger fits into a larger pattern of food industry consolidation as businesses aim to expand and get access to new markets.
In August, Mars Inc., the M&M manufacturer, completed a $36 billion acquisition of Kellanova, the business that makes Pringles and Pop-Tarts. Analysts say these agreements may become more frequent, particularly given the Trump administration’s expected pro-business posture.
Will the Hershey Trust approve the deal?
Although the market is excited about the possible merger, many obstacles remain. Even if Mondelez and Hershey can agree, the Hershey Trust’s consent is crucial.
The chocolate business is waiting to see if this initial strategy will significantly change the sector.
