What The Hershey, Mondelez Merger Means For Nestle

Loading...
Loading...

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.

Loading...
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsTrading IdeasEileen KhooMorgan Stanley
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...