The Rittenhouse Review

A Philadelphia Journal of Politics, Finance, Ethics, and Culture

Thursday, September 12, 2002  

Hershey's Scuttled Mega-Merger

Hershey Foods Corp., as many readers know by now, is for sale, or at least sort of for sale.

The Milton Hershey School Trust, which controls Hershey Foods by virtue of its ownership of 77 percent of the outstanding voting stock in the company, recently began soliciting bids from interested suitors. At least until a Pennsylvania Commonwealth Court, spurred by a complaint from Pennsylvania Attorney General Mike Fisher -- who argues that selling Hershey "would result in immediate and irreparable harm to the community" -- intervened and issued a temporary injunction barring the sale of the company.

A hearing on Hershey Foods' appeal of the restraining order ended today without the court issuing a decision.

The trust's attempt to sell Hershey to the highest bidder is not an unreasonable strategy. After all, shares of Hershey account for roughly half of the school trust's assets, and while Hershey, over time, generally has been a solid investment, this obviously is an unbalanced portfolio. According to media reports, interested parties include Nestlé S.A., Cadbury-Schweppes PLC, and, 73 years later, a reconfigured Kraft Foods Inc.

The Original Hershey Bar

What's interesting is that according to a Sept. 11 Associated Press report, company founder Milton S. Hershey at one point considered merging Hershey Foods with two other companies: Kraft Phenix Cheese Corp. and Colgate-Palmolive-Peet Co., now Colgate-Palmolive Co. The deal, struck in October 1929, collapsed when the stock market crashed four days later.

This information, presented in court documents by the Hershey School trustees, is intended to buttress their argument that the candy-maker's founder never intended that the trustees' management of the assets under their control be restricted in the manner suggested by those opposed to the sale of Hershey Foods.

Kraft Phenix Cheese was itself the product of a 1928 merger between J.L. Kraft & Bros. Co. and The Phenix Cheese Corp., the latter best known at the time for an enduring product, now made by Kraft Foods, that is still called "Philadelphia Cream Cheese." And Kraft, as we know it today, resulted from the 1988 acquisition of Kraft Inc. by Philip Morris Cos. and its subsequent merger with General Foods Corp., which had been acquired by P-M in 1985.

Perhaps this isn't exactly fascinating, but the notion of these three firms joining to form a corporation that might have been called Colgate-Palmolive-Kraft-Hershey Corp., Colgate-Palmolive -- obviously not averse to excessive hyphenation at that point in its history -- would have changed the course of history in the American consumer products business in the 20th century.

And the likelihood of this three-way merger being approved today is a question best left for economists, but it is unlikely given the concentrated nature of the laundry detergent business.

Certainly, the 1967 rejection of Procter & Gamble Co.'s 1957 acquisition of Clorox Chemical Co. (Think the courts move slowly today?) now known as The Clorox Co., on the grounds that the deal, opposed by the Federal Trade Commission and ultimately determined by the Supreme Court as presenting a "reasonable probability of a substantial increase in barriers to entry and of enhancement in pricing power in the liquid bleach industry," could present at least a few problems.

The larger point, of course, is that fears that an acquisition of Hershey would adversely affect the greater Hershey, Pa., area are almost without doubt misplaced. Hershey has survived well on its own since 1929, as have its 1929 would-be merger partners, Colgate Palmolive and Kraft. The wisdom of a deal with Nestlé, Cadbury, or Kraft would fall in the hands of management, the verdict ultimately to be issued by shareholders of the combined company.

In the end, seems a matter for the market, not the courts, to decide.

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