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Mars-Wrigley deal not sweet for Hershey

Talk about when worlds collide.

Mars Inc. (the candymaker, not the parent company of the Red Planet) Monday agreed to acquire Chicago's Wm. Wrigley Jr. Co. for $23-billion. Did I mention that Warren Buffett's Berkshire Hathaway Inc. will be helping to finance the deal?

I think I swallowed my gum.

The deal would create the world's largest candy company, surpassing Hershey Co. I'll bet a Pot of Gold box of chocolates that the reaction in the Hershey executive suite Monday morning was "uh-oh."

The central Pennsylvania company and the charitable trust that controls it have often not seen eye-to-eye on strategy.

Nearly six years ago, the Hershey Trust considered selling its shares to diversify the multi-billion-dollar endowment of the Milton S. Hershey School for underprivileged children.

The buyer? That would have been Wrigley. But that $12.5-billion deal was scuttled in the wake of protests by Hershey community leaders and litigation by Pennsylvania's attorney general demanding that the "social impact" of any sale on the Hershey community be considered.

It was as populist and protectionist a display as Pennsylvania could whip up. It stopped the sale, and cemented Pennsylvania's image as a place where businesses should fear to tread.

Mars' colonization of Wrigley could not come at a worse time for the maker of Hershey Kisses and Reese's Peanut Butter Cups. There has been tension between the trust and Hershey's board. The Hershey Trust replaced half of the board of the chocolatemaker in November. Long-time CEO Richard Lenny retired at the end of the year. And several publications had reported that the trust had held talks about a possible merger with Cadbury Schweppes PLC, but no deal emerged.

Now what? Several analysts speculate that Hershey may need to make a long-distance call to Cadbury again. There's an awkward conversation: "Remember that deal our biggest shareholder nixed last year? We'd like to talk it over with you."

Could Hershey counteroffer for the public Wrigley?

Come on. Warren Buffett vs. the Hershey Trust? Is that a fair fight? The legendary investing genius is eight moves ahead of the sclerotic organization that has misplayed its hand over and over since 2002.

And given the state of the credit markets, the wobbly world economy and the skyrocketing prices for cocoa, sugar and other goodies used in candy, how could Hershey hope to swallow Wrigley? The days of "let's take on gobs of debt" collapsed months ago.

Doing nothing is not an option. But Hershey management and the trust need to get on the same page this time. The company needs to broaden its international reach. And the quickest way to do that is to buy someone who's overseas. Or be bought.

Mars-Wrigley deal not sweet for Hershey 04/30/08 [Last modified: Thursday, October 28, 2010 1:28pm]
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