Hershey: too tempting for Nestlé to resist?

Hershey is seen as a perfect partner for Nestlé. hersheys.com

Nestlé, the world's largest food group, is seen as the favourite to take over Hershey Foods of the United States, which is up for sale.

Hershey, which is the biggest chocolate maker in the US, is considered an obvious target for Switzerland’s Nestlé because it has the US licence to manufacture and distribute Nestlé’s KitKat and Rolo chocolate brands.

These would revert to Nestlé with any change of control at Hershey, giving the Swiss group an advantage.

Nestlé spokesman Francois-Xavier Perroud refused to say whether Nestlé was considering a bid, but he confirmed that the United States was a key market in company strategy.

Ambitious

“We have quite a hefty chocolate operation in the US,” he told swissinfo. “We are number three in that market and… we are ambitious and we certainly will not be happy in staying in number three position for ever.”

The Milton Hershey School Trust, a charitable foundation that controls 77 per cent of Hershey’s voting power, announced on Thursday that the chocolate maker was up for auction.

Analysts at Bank Vontobel in Zurich said Nestlé was the most likely bidder for Hershey given the firm’s strong position in the market.

“Hershey Foods can only be of real fundamental interest to a company for which chocolate confectionery is of strategic importance. This alone makes Nestlé the favourite,” Vontobel said in a briefing note.

Chocolate and confectionery accounts for roughly 13 per cent of Nestlé group sales of SFr84.7 billion ($58.53 billion).

Hershey is currently valued at about $12 billion, an amount that is considered well within Nestlé’s grasp.

Deep pockets

“Nestlé will be able to afford to bid the most, given its higher synergy potential. And frankly, if a competitor wants to make silly bids, Nestlé’s pockets are very deep,” Vontobel added.

However, another analyst noted that such a bid by Nestlé would be a threat to its triple-A credit rating and would run counter to its strategy of focusing on internal growth and strategic high-growth categories.

If Nestlé is eyeing Hershey with interest, it will certainly not be alone. Philip Morris’s Kraft Foods, which owns the Swiss Toblerone brand, Cadbury Schweppes of Britain, PepsiCo, the US chewing gum manufacturer Wrigley and Mars are all said to be possible contenders.

Reports say the sale would be the 12th big deal in a two-year consolidation phase that has reshaped the global food industry.

They also note that Hershey is up for sale at a time when pharmaceutical giant Pfizer is selling Adams, its confectionery and gum company. Although a single bidder could be tempted to buy both, it is considered that the cost factor and regulatory hurdles would be too high.

Hershey is the largest US chocolate maker, with a market share of some 31 per cent. Its noted brands include Hershey’s Kisses, Twizzlers liquorice and Reese’s peanut butter cups.

By Robert Brookes