Mondelez (NASDAQ: MDLZ) pours The Hershey Co. (NYSE: HSY) a big glass of cold water
Mondelez (NASDAQ: MDLZ)—a multinational snack food company that owns a number of famous brands including Oreo, Ritz and Cadbury—appeared to pour cold water on recent speculation that it wanted to acquire rival chocolatier The Hershey Company (NYSE: HSY), suggesting that it’s focused instead on smaller deals and returning capital to shareholders.
“Given current market conditions, share repurchase remains an opportunity and key priority,” the company said this week, adding that it would continue with a strategy that focused on “bolt-on” acquisitions of smaller firms, similar to its recent purchases of Chipita, Clif and Ricolino. Mondelez also approved a new plan to buy back up to $9 billion of its Class A common stock through 2027. The move could support shares, which have declined nearly 12% this year amid ongoing concerns about inflation-stressed consumers and shifts toward healthier diets and less processed foods.
The statement came just days after reports that Mondelez had made a takeover approach for Pennsylvania-based Hershey’s, whose shares quickly shot up almost 15% before giving back some of the gains as doubts about a potential transaction began to emerge. For starters, Mondelez has tried to acquire the firm before—back in 2016—only to be rejected, with the trust that controls the company demanding a substantial premium. Hershey’s, meanwhile, is currently valued at 22 times forward earnings compared to Mondelez at 18.5 times, making it an already expensive target. With a market capitalization of $37 billion, it’s also much larger than the recent purchases Mondelez referenced, all of which cost less than $3 billion.
Capstone Partners said in a recent report that it expected deals in the food sector to pick up next year after strategic acquisitions of public companies slowed in 2024 as some firms “enacted disciplined capital allocation strategies focused on maintaining investment-grade balance sheets, organic growth initiatives, and returning cash to shareholders.” The price, however, still needs to be right, with sellers having greater luck when they lower valuation expectations. That might make smaller firms—such as J M Smucker Co (NYSE: SJM) and Campbell Soup Company (NYSE: CPB)—more interesting as potential targets than Hershey’s, given their lower forward price-to-earnings ratios of 11.5 and 13.4, respectively. Mondelez CFO Luca Zaramella has previously stated that the company is interested in adding chocolate, biscuit, cake and pastry assets to its portfolio.
The Hershey Trust Co., which owns a Hershey-themed amusement park in addition to the voting power it controls in the snack food company, has already demonstrated that it’s unwilling to part ways with its crown jewel for anything less than top dollar, if at all, and that might make a deal for the maker of Reese’s Pieces and Twizzlers something of a moonshot. That’s not to say there won’t be treats, however, and the sweetest bite around at the moment may be Mondelez’s promise of continued dividends and buybacks that will reward shareholders despite the current profitability pressures. There’s also the chance the latest talk might just be a negotiating tactic, which means the Hershey’s rollercoaster ride outside of the theme park could keep on rolling.
