The Hershey Co HSY Board has rejected a preliminary takeover offer from Mondelez International Inc MDLZ. If the deal, valued at $23bn, were to materialize, Nestle would be interested in regaining its KitKat US license, Morgan Stanley’s Eileen Khoo said in a report. He maintained an Overweight rating on Nestle SA (ADR) NSRGY, with a price target of SFr85.
Analyst Eileen Khoo mentioned the reasons for Hershey’s sale traditionally being seen as tough:
- The Hershey Trust holds 8 percent of its stock, but 81 percent of its voting rights, and the Trust has historically opposed a sale of the company.
- “Following the failed sale to Wrigley in 2002, the Pennsylvania Attorney General enacted legislation giving it greater statutory authority to halt a transaction if proven to violate trustees' fiduciary duties.”
Nestle May Consider KitKat License
KitKat is a $2bn brand for Nestle. However, Hershey has perpetual rights to the KitKat brand in the US through a legacy licensing deal with Rowntree. Khoo stated that Hershey's US KitKat sales are estimated at ~US$600m, with EBITDA margin of ~29 percent. He added that Nestle would be interested to regain control of the brand in the US.
If Mondelez were to acquire Hershey, ex-KitKat US, Nestle would continue to be in #3 position in global chocolate confectionery, with the gap between the companies increasing. “Nestle’s confectionery portfolio weakness remains its low presence in the fast-growing premium segment. Longer-term, a lack of progress here could raise questions about the strategic rationale for Nestle to remain a player in the confectionery category,” the analyst wrote.
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