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Hershey gives Nestlé the kiss-off

Nestlé has failed to take a bite out of Hershey's confectionery (Hershey) RTS

The trust that controls America's biggest confectioner, Hershey Foods, has said it will not sell the company to Swiss multinational Nestlé.

This content was published on September 18, 2002 - 19:49

The trust announced on Wednesday Hershey was no longer for sale, saying offers from Nestlé and Wrigley worth more than $10 billion were insufficient.

Robert Vowler, chairman of the Hershey Trust Co., said two bids had been submitted, one worth $12.5 billion (SFr18.8 billion)from Wrigley, and another joint offer from Nestlé and Cadbury worth $10.5 billion.

Vowler said neither bid was satisfactory, and the trust board voted to call off the sale.

He added that the cash offer from Nestlé and Cadbury was too low and that the trust, which controls 77 per cent of the shareholder voting rights in Hershey Foods, did not deem it beneficial to the Hershey community.

Wrigley's offer was a cash and stock deal.

Likely buyer

Shares in Nestlé rose slightly following news that the trust had ditched plans to sell the United States chocolate maker.

Nestlé, the world's largest food group, had been tipped as a likely buyer for Hershey.

As the biggest chocolate maker in the US with some 31 per cent of the market, Hershey was considered an obvious target for the Swiss multinational.

Hershey, which is based in Pennsylvania, holds the US licence to manufacture and distribute Nestlé's KitKat and Rolo chocolate brands.

Nestlé silence

The Vevey-based company has so far declined to comment on Hershey's decision but is thought to be reconsidering its plans for the big US chocolate market.

In Zurich, Nestlé's shares went up on the news 1.76 per cent to SFr318.5, outperforming Swiss stocks and European sector rivals. Share value continued to rise until the market closed, with a final value of SFr321.50.

Analysts said that the decision not to go ahead with the costly deal was good news for shareholders.

Iconic status

Hershey, whose brands include Reeses' Peanut Butter Cup and Hershey's Kisses, has an almost iconic status in the US.

The sale of Hershey was fiercely opposed both by politicians and the community.

Pennsylvania Attorney General Mike Fisher and residents of Hershey's namesake central Pennsylvania hometown feared a new owner would close plants and cut jobs.

Political pressure

Bankers involved in the sale process said the board caved in to enormous political pressure.

Fisher, who is running for Pennsylvania governor, had persuaded a court to temporarily bar the sale. Other legal challenges were pending.

"This has nothing to do with anything other than politics," said one banker close to the Hershey auction quoted by Reuters.

However, Vowler said the trustees' decision was based purely on financial considerations.

But Hershey's decision not to sell leaves question marks over Nestlé's US confectionary market strategy.

The company wants to be number one - or a strong second - in all of its markets, and buying Hershey would have propelled it to the top US spot.

Chocolate and confectionary accounts for roughly 13 per cent of the Nestlé group sales of SFr84.7 billion.

swissinfo with agencies

Key facts

The Pennsylvanian-based chocolate factory was founded by Milton Hershey 125 years ago.
Hershey built a community for his factory workers.
Hershey Foods has 31% of the US market.

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