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Mondelez has dropped their acquisition of Hershey’s, the famous chocolate producer, and now is searching for strategic options that may not involve a big acquisition.
The CEO of Mondelez which makes Oreos and other snack foods and was spun out of Kraft, Irene Rosenfeld, indicated that the company would undergo a cost cutting process to try and improve profits as an alternative to the acquisition.
Hershey’s stock dropped ten percent on the news that Mondelez will no longer pursue an acquisition of them and it is uncertain if any other suitors will step up to acquire them. Mondelez stock rose by four percent on the news.
Mondelez had met opposition by the trust that controls eighty percent of the voting stock of Hershey and was trying to fight off the acquisition. The trust that owns the shares is a charitable organization that was created by the founder of Hershey over a century ago. The charitable trust had previously fought off a merger with Wrigley a few years ago. This offer was for a price of $107 per share which was a significant premium over the stock price of Hershey at the time of the offer which was made in June.
There are inside reports that Hershey’s trust board would not accept an offer of less than $125 per share and apparently Mondelez was not willing to sweeten the deal to this value. The Mondelez deal was in half stock and half cash and would have been financed with new bond issuances.
Many investors of Mondelez had long emphasized the importance of the company cutting cost considering Mondelez has some of the lowest margins in the industry. While Mondelez’s CEO emphasized the plan to cut costs there were no mentions of how this would occur, either through layoffs or other cost cutting programs that the coompany chooses to pursue.
Mondelez may become a takeover target of itself now that the merger with Hershey has failed. Many market observers believe this is now on the table and Mondelez may lose its ability to control its own future. The food industry is experiencing low growth and the cheap debt available makes the industry ripe for consolidation.
There will likely be a lot of speculation regarding Mondelez’s next move, but investors in the company, at least, seem to be happy that the acquisition of Hershey did not go through.