http://www.post-gazette.com/pg/07317/833315-28.stm
Hershey's top shareholder tightens grip over struggling company
Tuesday, November 13, 2007
By Marc Levy, The Associated Press
HARRISBURG -- The charitable trust that controls Hershey Co. is flexing its muscle by overhauling the board of the nation's biggest candy maker, mired in a yearlong slump.
Analysts said that, with The Hershey Trust committed to remaining Hershey's largest shareholder, a sale of Hershey appears even less likely than before.
But they also said they expected the trust will demand better performance from the company.
The Hershey Trust asked six directors to resign, while two others volunteered to leave, the company said Sunday.
The trust then installed two of its own members, several people with deep roots in Pennsylvania -- including former Gov. Tom Ridge -- and others with experience in the investment world.
"This is clearly the strongest indication yet that the trust wants to be in the driving seat of the next phase of the company's history," Sanford C. Bernstein & Co. analyst Alexia Howard said in a research note.
The changes came against the backdrop of speculation that the trust and the company have clashed over a potential deal with rival Cadbury Schweppes PLC.
In the past, the Hershey Trust has said it is obligated by Pennsylvania law to retain its controlling interest in the candy maker, even though it says the company's prosperity requires aggressive pursuit of growth.
Analysts said a merger with Cadbury, or similar major move, seems unlikely,
Still, Ms. Howard said she at least expects the trust to make bold moves, and cited the deal-structuring expertise of new board members from the private equity world.
Goldman, Sachs & Co. analyst Steven T. Kron, who questioned Hershey's ability to absorb Cadbury without significantly diluting profits, said he expected the trust to look hard at improving the company's fundamental performance.
Hershey's stock price closed yesterday at $41.29, up 25 cents.
This fall already has been tumultuous for the maker of Hershey's Kisses and Reese's, which is trying to revive its sales while undergoing a dramatic shift to cut its domestic plants and expand production in China, India and Mexico.
On Oct. 1, Chief Executive Officer and Chairman Richard H. Lenny abruptly announced his resignation amid speculation about a deal between Hershey and Cadbury.
A week later, the trust put out a strongly worded statement saying that it was unhappy with Hershey's performance.
Any merger with Cadbury would stoke deep concern in Hershey, a community that closely identifies with Hershey's founder, Milton S. Hershey, over whether the century-old candy maker would abandon its hometown.
Wounds in the town are still fresh from 2002, when the previous Hershey Trust board sought to sell the company.
That prompted a ferocious community backlash and a lawsuit by the state attorney general, who led a purge of trust board members who voted for a sale.
The trust is the custodian of Milton S. Hershey's fortune, using it to fund a school for underprivileged children that is just blocks away from the company's original chocolate factory on Chocolate Avenue.
Joining the company's board are Mr. Ridge, who also served as the nation's first Homeland Security secretary; former Hershey CEO Kenneth L. Wolfe; and the trust's chairman, LeRoy Zimmerman, a former Pennsylvania attorney general.
Also added were Charles A. Davis, who spent 23 years at Goldman, Sachs and is now CEO of Stone Point Capital, and Edward J. Kelly III, the managing director of private equity firm the Carlyle Group.
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