Case 44
Case #44
Hershey’s
Synopsis and Objectives
The proposed sale of Hershey Foods Corporation (HFC) during the summer of 2002 captured headlines and imaginations. After all, Hershey was an American icon, and when the company’s largest shareholder, the Hershey Trust Company (HSY), asked HFC management to explore a sale, the story drew national and international attention. The company’s unusual governance structure put the Hershey Trust’s board in the difficult position of making both an economic and a governance decision. On the one hand, the board faced a challenging economic decision that centered on determining whether the solicited bids provided a fair premium for HFC shareholders. On the other hand, the governance decision required the board to balance its fiduciary responsibility against the original mandate of Milton Hershey to support the Hershey School in perpetuity. The fiduciary responsibility is relatively simple compared with satisfying a broad array of constituents, including the Hershey community, HFC employees, and Pennsylvania’s attorney general.
Suggested questions
1. Assume that you are a member of the Hershey Trust board. To whom (or what) do you owe your fiduciary responsibility? How does the legacy of Milton S. Hershey affect your thinking as a member of the board? 2. Is diversification a valid reason to sell HFC? How would such diversification have served the Hershey School 10 years ago, for example? 3. Based on your valuation of HFC, do you feel the company was fairly valued by the market before the announcement of the sale? Are the Nestlé–Cadbury Schweppes and Wrigley bids fair to their own shareholders (i.e., what needs to happen in order for these bids to create value for the bidding companies)? (Hint: use a discount rate of 7.5% for your analysis of HFC’s value.) 4. Which, if any, bid would you vote to accept for the purchase of Hershey Foods Corporation? Is your decision primarily based on the economics of the
Hershey’s
Synopsis and Objectives
The proposed sale of Hershey Foods Corporation (HFC) during the summer of 2002 captured headlines and imaginations. After all, Hershey was an American icon, and when the company’s largest shareholder, the Hershey Trust Company (HSY), asked HFC management to explore a sale, the story drew national and international attention. The company’s unusual governance structure put the Hershey Trust’s board in the difficult position of making both an economic and a governance decision. On the one hand, the board faced a challenging economic decision that centered on determining whether the solicited bids provided a fair premium for HFC shareholders. On the other hand, the governance decision required the board to balance its fiduciary responsibility against the original mandate of Milton Hershey to support the Hershey School in perpetuity. The fiduciary responsibility is relatively simple compared with satisfying a broad array of constituents, including the Hershey community, HFC employees, and Pennsylvania’s attorney general.
Suggested questions
1. Assume that you are a member of the Hershey Trust board. To whom (or what) do you owe your fiduciary responsibility? How does the legacy of Milton S. Hershey affect your thinking as a member of the board? 2. Is diversification a valid reason to sell HFC? How would such diversification have served the Hershey School 10 years ago, for example? 3. Based on your valuation of HFC, do you feel the company was fairly valued by the market before the announcement of the sale? Are the Nestlé–Cadbury Schweppes and Wrigley bids fair to their own shareholders (i.e., what needs to happen in order for these bids to create value for the bidding companies)? (Hint: use a discount rate of 7.5% for your analysis of HFC’s value.) 4. Which, if any, bid would you vote to accept for the purchase of Hershey Foods Corporation? Is your decision primarily based on the economics of the