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The proposed sale of Hershey Foods Co., the maker of Hershey's Kisses and Reese's Peanut Butter Cups, is turning into a surprisingly complex matter. Since the company put itself up for sale in late July, the Hershey community and school as well as the state's attorney general and gubernatorial race have made the saga into a soap opera.
A sale of a company rarely turns complicated, but Hershey Foods Co. is an unusual company. The company's largest shareholder is the Milton Hershey School Trust, owner of a third of the company's stock. It owns 77 percent of the voting power, esentially running the company. The trust is a charitable foundation that runs the Milton Hershey School in Hershey, PA, giving free local education to about 1,200 disadvantaged children. On July 25, the trust shocked analysts and the community by announcing that it was selling its share in Hershey Foods. The trust, a for-profit corporation, thought that in light of the recent volatile market conditions, and as a sole benefactor of the Milton Hershey school – founded in 1909 by Hershey Foods founder Milton Hershey – it needed to diversify its holdings, 52 percent of which were in Hershey Foods.
After the news, Hershey's stock jumped 20 percent to over $70 a share, as analysts speculated about possible buyers, including the Kraft Foods and the Swiss company, Nestlé. The consensus estimate was that the $10 billion company would sell for somewhere between $87 to $95 a share, or $12 billion to $13 billion.
The announcement drew immediate criticism from numerous sources. The Hershey community, whose life depends on Hershey Foods, opposed the deal, fearing that the sale of the company would lead to job losses and factory closings. The Milton Hershey School alumni similarly criticized the proposal, claiming that the trust is operating against the philanthropic philosophy of the company's founder, Milton Hershey, and called for a change in the trust board. The Milton Hershey School Alumni Association pressed the state legislature to halt any possible transaction pending investigation of the trust board, which was investigated and ordered to reform by the attorney general for conflict of interest for also acting as the school's board.
Meanwhile, two weeks after the proposal was announced, Pennsylvania Attorney General Mike Fisher, regulatory authority on charities, asked the trust to consider alternatives after a long meeting with the trust's board. A week later, he petitioned the Dauphine Country Orphan's Court to approve any deal, claiming that the court has jurisdiction because the trust is a charitable foundation and the sale of Hershey would affect the welfare of the public. The trust has insisted that an outright sale of its shares yields the most financial benefits.
As Fisher moved to the courts, he also worked behind-the-scenes in the state legislature to make it more difficult for the trust to sell Hershey Foods. The reason for Fisher's involvement is found in the state's gubernatorial race, where he, the Republican candidate, trails by 12 points. Through this efforts, he is hoping to seek votes of central Pennsylvania and the Hershey community.
A week after the petition was filed, Judge Warren Morgan asked Hershey Foods shareholders to respond to the attorney general's petition and explain why the sale should not be subject to court's approval. Only a week later, the attorney general filed another petition requesting an injunction against the trust's board, fearing that a deal may be reached before the court could determine whether it has the jurisdiction to intervene. The trust, in response, claimed that selling the company was within its authority.
In a surprise move last week, after several days of testimonies, Judge Morgan granted the injunction requested by the attorney general and halted the trust from proceeding with the planned auction of the company until the court can determine whether it must authorize any sale. The judge also suggested that the alumni association, which has been looking to get involved, may have standing in the case. The case is now in the state appeals court, due to the trust's appeal. Until a judgment is reached in that case, the decision on whether the alumni association can get involved has been postponed.
Through the legal issues, the fear is that the $10 billion-plus sale of Hershey Foods may be put in jeopardy. Nestlé's CEO has publicly announced that it would not pay $12 billion for the company, despite rumors that they offered an aggressive price for Hershey Foods. Even as the volatility in the stock market continues and the trusts insists its lack of diversity in its portfolio poses great risk, it may not be able to find a buyer if and when the sale becomes a possibility.
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