- The drama of Hershey's rejected takeover bid from Mondelez is expected to "spur a new sense of urgency at the Hershey Co. to boost shareholder value and improve fundamental performance," Credit Suisse research analyst Robert Moskow wrote in a report this week.
- Credit Suisse has since raised its 12-month target price for Hershey to $110 per share, up from its previous $91 target. Mondelez's takeover offer earlier this month was $107 per share, or about $23 billion.
- Moskow said that while "Hershey management will feel sufficient pressure from shareholders and its board to provide a palatable alternative to selling the business outright," the company has several options besides an outright sale.
Moskow's suggestions included that Hershey could rein in its emerging market investments, put in place stricter trade promotion guidelines, initiate stricter zero-based budgeting policies, or restructure its supply chain by leveraging its 2014 acquisition of Allan Candy, a Canadian manufacturer that was already producing Hershey brands like Lancaster and Jolly Rancher.
These moves wouldn't necessarily spur much top-line growth, Moskow said. In the latest reported quarter, Hershey saw sales decrease 5.6%, the third consecutive quarter of sales declines, so any top-line growth would be a welcomed change for the company.
But these initiatives could shift investors' focus to margin expansion and EPS growth, which could ease calls for a sale and restore investor confidence. Net income fell to $229.8 million, or $1.06 per share, last quarter from $244.7 million, or $1.10 per share, in the same quarter last year.
Mondelez itself knows this concept all too well. In the past, the company's CEO Irene Rosenfeld has expressed her frustration with activists' demands to sell the company, even as Mondelez pursued further margin expansion.
Moskow wrote that Credit Suisse's consensus view matches what many other analysts believe: Mondelez may come in with a higher offer, and such an offer would put more pressure on the Hershey Trust to consider a sale.
Moskow also iterated that Credit Suisse feels more board resignations may come as Pennsylvania's attorney general continues an investigation into the trust. Those resignations may lead the company to bring onboard outsiders with no ties to the state, which makes a Mondelez takeover more likely.
However, the state's attorney general still holds the power to block a sale even if the trust approves, so the deal's probability remains low, Moskow said.
Back in December, Moskow wrote in another report that Hershey may be considering an outsider to replace CEO J.P. Bilbrey and speculated whether Hershey would jump on the industry consolidation trend.