Hershey Gardens, Hershey, Pa. Photo by Esther Westerveld.
I have a big personal and public connection to chocolate.
I consume my fair share of it, directly and in cakes, cookies and doughnuts. I give away even more. Every year, my company buys about 350 pounds of high-quality Belgian chocolate in the form of customized one-pound bars, which we give away to clients, friends, staff and family.
But I am not a chocolate snob. I don’t pay too much attention to cacao content percentages. Nor do I much care whether my chocolate comes from Brussels or Geneva, or Burlington, Vermont (a city that happens to have quite a healthy chocolate trade) or Hershey, Pennsylvania.
Self-appointed connoisseurs may recoil, but I think they make some pretty good chocolate over there in Hershey. They also run an amusement park that is worth a day trip, and they have a fine private school for underprivileged children that was founded in 1909 by Milton Hershey himself, along with his wife, Catherine. Every admitted child attends cost-free.
The kiss-shaped street lamps are cool. So is the factory itself, which I visited when I was a teenager, before they redirected the hordes of tourists to a visitors’ center that is still interesting, though much less cool.
Maybe you need to be a businessperson to really appreciate Hershey’s chocolate. The art is not so much in the making of it as it is in the making of it in such vast quantities and at such low cost as to be a favorite treat in much of the world. Even today, seven decades after World War II ended, people remember how American GIs handed out Hershey bars to European children who craved any tiny scrap of joy that came their way. Those Hershey bars were packaged joy, produced in a little factory town set amid the rolling pastures of eastern Pennsylvania.
The businesspeople at Mondelez International Inc. certainly appreciate Hershey’s value, as demonstrated by a recent bid for the company. The Wall Street Journal reported that Mondelez offered $23 billion for Hershey. If successful, the move would combine world’s fifth-largest chocolate candy maker (Hershey) with the second-largest (Mondelez, which owns Cadbury and Oreo, among other brands).
Hershey’s board unanimously rejected the offer, but Mondelez seems disinclined to give up so easily. The Illinois-based company offered to protect existing jobs, move the merged company’s headquarters to Hershey, Pennsylvania, and rename the resulting company Hershey, despite its being the company acquired rather than the buyer. These moves seem expressly calculated to woo the Hershey Trust – without which there will be no deal.
The Trust holds 8.4 percent of the company’s common stock and a whopping 81 percent of its voting power. And it has opposed sales in the past, including an offer from Wm. Wrigley Jr. Co. more than a decade ago. The Trust’s main mission is to make decisions that will best benefit the school that bears the name of the company’s founder. So far, no buyer has convinced the trust that acquisition will best serve that end, though it seems likely Mondelez will continue to try.
Even if it wins over the board, however, a prospective buyer faces a second major hurdle. Less than two months after the deal with Wrigley fell through, Pennsylvania’s governor signed an amendment to an existing statute, requiring the state’s attorney general to approve the sale of any company controlled by a charitable trust. Pennsylvania’s current attorney general, Kathleen Kane, is serving the last few months of her first term in the strange position of running her office without a law license; she was stripped of it after being accused of leaking confidential information, charges she continues to claim are part of a conspiracy against her. What she or her successor, since Kane is not running for re-election this fall, would make of a takeover bid for Hershey’s is anyone’s guess.
Not many people know this, but Milton Hershey was a self-made millionaire before he even entered the chocolate business. After being apprenticed to several candy makers as a teenager, he founded the Lancaster Caramel Company and built it into a major enterprise before selling it. He used the proceeds to buy land and start his chocolate empire in what was then open dairy country about 30 miles northeast of Lancaster. The town of Hershey was and is, literally, a company town.
Unlike similar communities in the coal country of Appalachia, however, Hershey was a benevolent place. Milton and Catherine Hershey could not have children of their own, but they became deeply invested in the lives and welfare of their workers and their workers’ families. Milton maintained his philanthropic bent even after losing his young wife to illness in 1915. He intended the chocolate fortune he built to sustain his community and his favored causes indefinitely, through the Trust and the private charitable foundation he established in the 1930s, and thus far it has done just that.
So I don’t have a huge problem – at least in theory – with the idea that Hershey’s business is today suboptimal. Perhaps better results could be obtained via a merger with someone like Mondelez. But if Milton were around today, I doubt he would sell his company to Mondelez, so it is reasonable for his successors to take the same position. Except for one thing.
Hershey’s is no longer a private company. It has a fiduciary obligation to its public shareholders, many of which are pension and mutual funds that operate on behalf of people far beyond eastern Pennsylvania. These shareholders’ interests are prejudiced by the Hershey Trust’s divided and conflicted loyalties. It is a problem typical of companies that trade publicly with multiple share classes that provide disproportionate control to a favored group of owners. Investors who buy Hershey’s stock are well aware of this ownership structure, of course, so it is fair to argue that there is nothing inappropriate here – except that even minority shareholders are owed duties of good faith and fair dealing by those in control. The entrenched, self-perpetuating clublike nature of the Hershey’s structure is a problem, and the reaction to the Mondelez bid can be seen as an effort by the Trust’s officers to maintain their favored status.
Still, it was Milton Hershey’s company to build, run and dispose as he chose. He was a savvy businessman and presumably knew exactly what he was doing when he turned his private company into a quasi-community asset. His structure has held up this long, and my guess is that it will remain intact. I don’t think Mondelez will wind up owning Hershey’s, no matter how much it is willing to pay.
The world changes, and Hershey’s may not be able to prosper indefinitely as an enterprise while standing alone in those Pennsylvania pastures. For the time being, however, I am not worried about losing access to Milton’s inexpensive but iconic chocolate bars.