Mondelez explores acquisition of Hershey, in potential $35 billion deal

Mondelez International, the parent company of Cadbury, is reportedly exploring the acquisition of Hershey, a move that would create one of the world's largest confectionery companies. Bloomberg News, reported on Monday that Mondelez has made an initial approach for Hershey, valued at approximately $35 billion. Shares of Hershey rose by as much as 19% to $208.03 following the news, while Mondelez's shares fell about 4% in morning trading.

The proposed deal would see Mondelez, which has a market capitalisation of around $84 billion, strengthen its position in the global chocolate market. 

A significant hurdle in the potential acquisition is The Hershey Trust Company, a charitable trust that holds voting control over The Hershey Company. Approval from the trust, whose sole beneficiary is the Milton Hershey School, would be necessary for any deal to proceed.

This is not the first time Mondelez has sought to acquire Hershey. In 2016, Mondelez, which produces Oreo cookies and Cadbury chocolate, attempted a $23 billion takeover. The bid was rejected, with the choclate maker reportedly unwilling to negotiate for an offer below $125 per share.

The chocolate industry, like many other sectors, has faced challenges from rising input costs, particularly cocoa, which has led companies to increase prices and, in turn, weaken consumer demand. Last month, the chocolate maker adjusted its annual revenue and profit forecasts downwards after reporting quarterly revenue of nearly $3 billion, driven by weaker demand. Mondelez, meanwhile, reported a nearly 2% increase in sales, reaching $9.2 billion in its latest quarter.

The stagnation in growth among packaged food companies after years of price hikes has opened the door for more mergers and acquisitions. Earlier this year, Mars, the family-owned candy giant, announced the $36 billion acquisition of Kellanova, known for its Cheez-It brand, in the largest deal of the year at that time. The merger brought together well-known brands including M&M’s, Snickers, Pringles, and Pop-Tarts.

If successful, Mondelez’s potential acquisition of Hershey would expand its presence in the US chocolate market, the world’s largest consumer of cocoa-based confectionery. In 2022, Hershey led the US chocolate market with nearly 36% of the share, ahead of Mars, which held nearly 30%, according to Statista data. Mondelez’s key chocolate brands, Cadbury and Milka, are major sellers in Europe.

Mondelez’s forward earnings multiple for the next 12 months is 18.40, compared to 21.61 for Hershey, according to data from LSEG.