'Sweetest' town clings to Hershey, adding to takeover hurdles

[July 05, 2016]  By Koh Gui Qing
 
 HERSHEY, Pennsylvania (Reuters) - The town of Hershey, Pennsylvania, calls itself the "sweetest place on earth."

But if chocolate giant Hershey Co. considers any new acquisition offer in the coming weeks, it could face bitter opposition from some in its namesake town, where residents have prospered from its presence and tend to be fierce defenders of its independence.

The impact of such views goes beyond sentimental in the wake of Mondelez International Inc's $23 billion bid to buy the company, which Hershey said on June 30 it had rejected. The town of Hershey, where the company's staunchest loyalists are referred to as "Hershey-ites", has real influence over corporate decisions.

The Hershey Trust, a $12 billion school charity and the company's controlling shareholder, has become increasingly involved in the local community over the decades, and has appeared to listen to its concerns in the past.

Pennsylvania's attorney general, who supervises the trust and can ask a court to block any deal, holds an elected office and is sensitive to local concerns, though the current office holder is not planning to seek reelection.

Pennsylvania law requires any charitable trust to consider, when selling an asset, the “special relationship of the asset and its economic impact as a principal business enterprise on the community” and the “special value” of its ties to the community.

Since the company was founded by Milton Hershey 122 years ago, residents here have fought many plans that would have changed Hershey Co. and, in turn, a community built around one of the world's most famous confectioners.

Although the Hershey Trust rejected the bid by the maker of Oreos cookies, a spike in Hershey's share price above the bid of $107 per share has indicated investors expect a new offer.

Many in the rural town of around 14,000 people voiced apprehension to Reuters about a sale, despite apparent reassurances from Mondelez.

The food and beverage multinational has offered to keep Hershey's name, move its headquarters to Hershey, and preserve jobs, according to people familiar with the matter who declined to be identified because Mondelez has not disclosed details of the bid. Most residents declined to give their full names, citing local sensitivities around discussing the firm, which employs 4,800 people here.

"I don't think they should sell the company," said a 76-year-old woman who gave her name as G.C., as she guided visitors through Hershey's Chocolate World, a sprawling candy store stocked with giant chocolate bars.

"Hershey is Hershey. It should always be Milton Hershey. He did good for the community," said the woman, who has worked at Chocolate World for eight years.

"IT'S ALWAYS BEEN HERSHEY"

A 3.5-hour train ride from New York, Hershey stretches out across verdant fields between delectably named streets such as Chocolate Avenue and Cocoa Avenue. Between well tended lawns and street lamps shaped like the popular Hershey's Kisses Chocolate, Hershey is dotted with landmarks from a theater to a cemetery that are tied to the confectioner.

Residents point to houses built by Milton Hershey for his factory workers and extol the "Hershey legacy", where a successful business looks after the people, the way Hershey did at the height of the Great Depression in the 1930s by embarking on a construction spree in town to create jobs.

House prices and income levels in Hershey are substantially higher compared to neighboring towns in Pennsylvania, according to government data.

Today, the heart of the "Hershey legacy" is arguably found in the Milton Hershey School, a private boarding school for around 2,000 students from low-income families. Their education and living expenses are paid for by the Hershey Trust, which is funded by the Trust's stake in the chocolate maker.

An old Hershey Co. chocolate factory remains standing in Hershey, Pennsylvania, U.S. on July 2, 2016. Picture taken July 2, 2016. REUTERS/Koh Gui Qing

"Everyone who worked for Mr Hershey always had a job," said Ernie, a 69-year-old Hershey worker who declined to give his last name. "It's always been Hershey."

Asked about the town's role in the company, Hershey Co. said: "We are proud of the company's rich heritage and the Hershey community." Spokespeople at Mondelez were not immediately available for a comment.

The town's devotion to its roots has led to confrontations in the past. Back in 2002 when Wm. Wrigley Jr., renowned for its chewing gum, attempted to buy Hershey for $12.5 billion, irate local residents signed petitions and staged rallies to stop plans to sell the company.

The then attorney general sought to block the deal, prompting the Trust to call off the sale at the last minute.

When some residents complained about the planned demolition of parts of an old Hershey factory in 2012, the company went ahead anyway.

"People like things to stay the way they are," said a 63-year-old resident who has lived in Hershey since 1978.

To be sure, not all Hershey residents are attached to the status quo. Some younger residents voiced indifference to the future of the candy maker, saying practical business considerations should take precedence.

On paper, a sale to Mondelez could benefit Hershey.

Hershey has a strong U.S. presence while Mondelez has a global network. A marriage of the two would create the world's largest confectionary company with an estimated 18 percent of the market share, said market research firm Euromonitor International Ltd.

While Mondelez has vowed to keep Hershey's name and preserve jobs, some said such promises would ring empty with loyal "Hershey-ites."

U.S. food giant Kraft, now known as Kraft Heinz Co, drew controversy in 2010 after it shut a factory in southwest England following its takeover of Cadbury, now owned by Mondelez, reneging on an earlier promise to keep the factory open.

"Would I like it to be sold? No," said the 63-year-old resident.

"There is the legacy and the history of Mr Hershey, and what becomes of the Trust? I don't know what will become of the school and the Trust."

(Reporting by Koh Gui Qing; editing by Greg Roumeliotis and Stuart Grudgings)

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