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No Hershey Kiss After All

Hershey Mondelez

Image source: Tupungato / Shutterstock.com

What's going on?

Confectionery giant Mondelez said late on Monday that it would cease its attempts to buy chocolatier The Hershey Company. The deal would have created the world’s largest candy company.

What does this mean?

Mondelez made an initial bid for Hershey back in June. According to reports, Mondelez made a follow-up bid last week at a slightly higher price, but was rebuffed by Hershey. Hershey’s stock sold off about 10% on Tuesday, its first day of trading after the news broke that there would be no deal.

Hershey’s controlling shareholder is the Hershey Trust Company, which has opposed selling Hershey in the past and is undergoing an overhaul following a government investigation into its operations. Reportedly, it was a major obstacle to meaningful negotiations taking place.

Why should I care?

For the stock: The Hershey Trust is likely to dissuade further bidders – at least until its own situation is fully resolved.

The Hershey Trust has agreed to make changes to its board both this and next year. Since the Trust controls about 80% of the voting stock of the company, other potential bidders are unlikely to engage with Hershey until it looks like the Trust is at least in a position to negotiate with a potential buyer (which is likely part of the reason that Hershey’s stock sold off so much on Tuesday).

For you personally: This shows the power of voting shares.

The Hershey Trust owns a minority of Hershey overall, but it has effective control of the company because of its majority stake in the voting stock. That leaves the holders of non-voting stock at a disadvantage because they don’t have influence over key strategic decisions like this one (which could have been lucrative for them). It’s important for investors to note this dynamic when they own non-voting stock (for example, Facebook recently created separate non-voting stock).

Originally posted as part of the Finimize daily email.

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