When you buy a stock, you buy an ownership stake in a business. It might be a small stake for most people, but with sufficient resources, it’s possible to buy enough shares to actually control the entire company. In fact, there are many examples of wealthy investors doing this in the past.
However, when it comes to candy giant The Hershey Company (HSY -0.46%), it doesn’t matter how many shares an investor buys because there’s an entity called the Hershey Trust Company that maintains control of the business. This trust just told Mondelez International (MDLZ -1.12%) to take a hike … again.
Here’s why Hershey stock was doing its best impression of the Candymonium roller coaster from Hersheypark this week, and what it means for investors going forward.
Hershey rejects Mondelez for a second time
Hershey stock soared on Dec. 9 after news broke that Mondelez had approached the company with a takeover offer. Mondelez tried to buy Hershey in 2016 for $23 billion but was turned down. Investors seemed to hope the courtship would go differently this time, but various outlets have reported that Hershey again rejected Mondelez’s advances, causing its stock to give up some of the recent gains.
But where was the shareholder vote? Why hasn’t there been a statement from Hershey CEO Michele Buck? Why wasn’t a committee appointed to explore the option?
It appears the offer from Mondelez never progressed far enough for any of these things to happen. Mondelez knows it needs the approval of the Hershey Trust Company board — and it reportedly didn’t get it.
It’s common for companies to have multiple share classes. In this case, Hershey’s Class A shares are the ones that trade publicly on the New York Stock Exchange. There are roughly 200 million of these shares (on a diluted basis), and you can buy one for about $184 as of this writing.
But Hershey also has nearly 55 million Class B shares, which aren’t publicly available for trading. These shares get 10 votes each, compared with a single vote for Class A shares. As a result, whoever controls the Class B shares controls the company, and this ownership structure allows Hershey Trust Company to hold the reins.
Neither Mondelez nor Hershey officially commented on the negotiation, so it’s unlikely investors will ever know the full details of the offer. But whatever it was, Hershey Trust Company decided it wasn’t enough.
What this means for shareholders
I mean no disrespect to Hershey, but Mondelez shareholders should be happy a deal didn’t materialize. Mergers and acquisitions are hard enough as it is, but the bigger they are, the more complex they become. Hershey’s market cap is about $36 billion, meaning Mondelez had to offer well over this amount to get a deal done. That would have been difficult.
Meanwhile, Mondelez announced on Dec. 11 that it was starting a $9 billion stock buyback plan and would also focus on smaller, “bolt-on” acquisition opportunities.
As for Hershey’s shareholders, they should be happy the Hershey Trust Company exists. Business never rises up and to the right in a straight line. There are always tough periods for a company, and that’s when the sharks start to circle. And to be clear, things are somewhat difficult for Hershey right now.
It’s facing an unprecedented spike in the price of cocoa, which is obviously one of its biggest input costs.
Data by YCharts.
Hershey is also facing some demand headwinds. There are popular weight-loss drugs affecting consumer behavior and upstart candy brands to compete with.
But the business is far from doomed. On the contrary, with $11 billion in annual sales and nearly $1.8 billion in net income, this is still a storied brand with products that consumers love. That said, management teams can be pressured to think short-term during challenging times, which isn’t good for long-term shareholders.
Those shareholders can take comfort in the fact the Hershey Trust Company is there to maintain a long-term vision. To quote the Hershey Trust Company: “Today, Hershey Trust Company stands alone as being the same company doing business in the same town for one hundred years. And their unique ownership structure virtually assures that they will continue doing business that way for the next 100 years.”
While Hershey is unlikely to be the top-performing stock of 2025, companies that can afford to look beyond the horizon are often at an advantage. For its part, Hershey Trust Company is taking the century view, giving this household name plenty of breathing room to execute on its vision.
