No radical changes expected at Hershey as Trust cuts stake: SIG

By Douglas Yu contact

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Hershey Trust currently holds 81% of the Hershey Company's voting interest.  Photo: ©iStock/gsheldon
Hershey Trust currently holds 81% of the Hershey Company's voting interest. Photo: ©iStock/gsheldon

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Hershey's majority shareholder The Hershey Trust has cut its majority stake by 6% from $8bn to $7.5bn, but its voting interest is largely unchanged and analysts don't expect further divestment. 

The Hershey Trust last week sold approximately $159m (1.5m shares for $106 per share) to The Hershey Company.

The Trust sold an additional 3 million shares of common stock in Hershey to Morgan Stanley. It, however, did not disclose the price of these shares.

Hershey Trust's economic interest in the chocolate company goes from 34.3% to 32.3%, but its voting interest changes little (from 81.5% to 81%).

Eric Henry, CEO of the Trust, said: “Hershey Trust Company recommended and its board approved a partial sale of the common shares of the Hershey Company as an appropriate means of providing ongoing and additional financing for Milton Hershey School (charity school for disadvantaged children).”

“The concentration of the Hershey Company stock in our overall portfolio has increased over the years because of the exceptional performance of the Hershey Company and corresponding stock value,”​ he added.

The latest Q2 financial results​ showed that Hershey’s net sales reached $1.66bn, increasing 1.5% compared to the same period last year, ConfectioneryNews recently reported.

‘An evolving entity’

Investment company Susquehanna International Group (SIG) wrote in a report the transaction is an indicator the Hershey Trust is an evolving entity, and it has other priorities on its hands, such as expanding the Milton Hershey School  it oversees as well as other development projects.

“[The Trust] is unlikely to look at strategic alternatives for its stake in Hershey in the near or medium term,”​ the financial group said. “Certainly, maximizing the value of the Hershey stake is not at the top of the agenda for the Trust.”

“With lackluster top line trends, candy category challenges (down 5% in the last three months) and on the margin new competition from Mondelēz in the US, we see more downside than upside in the near term for Hershey shares,”​ SIG said, adding the Trust may consider a sale or merger of Hershey in the longer term.

The Reese’s maker rejected Mondelēz’s $23bn takeover approach​ last year, a bid that would have created the world’s largest candy company.

Board members change

The Trust had previously been accussed of extravagant spending​ ​that led to three board members stepping down in December 2016. The company selected three new members earlier this year, including former partner of Goldman Sachs, James Katzman; Jan Loeffler Bergen; and an alumna of the Milton Hershey School, Melissa Peeples-Fullmore.

A spokesperson for the Trust said it hopes to have 13 members on board by the end of 2017. 

Related topics: Manufacturers, Chocolate, Hershey

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