SHOP TALK ZEENAT MOORAD

Sweet talk sometimes just doesn’t cut it. Mondelez’s pursuit of Hershey has fallen apart. Not even moving its HQ and changing its name was persuasion enough. You will remember that the US$23bn cash and stock takeover bid from two months ago was rebuffed by Hershey — Cadbury owner Mondelez offered $107/share (a 10% premium). Mondelez raised its offer to $115/share but Hershey was after something richer, north of $125/share. Large is the place to be but Mondelez was never going to overpay. Any price above $128 wouldn’t make financial sense. The suitor was keen, not desperate.

The purchase price was not the only problem. There were trust issues. Hershey is gripped by an incestuous charitable trust that wields about 81% of its votes, and holds roughly 8.4% of its common stock — this gives it the ability to tell unwanted suitors to go and jump. The trust was set up by the company’s founder a century ago, to preserve Hershey’s ties to its local community. It counts on Hershey’s dividends to fund operations like the Milton Hershey School.

All is not kosher, though. The Pennsylvania attorney-general’s office is probing the trust for dodgy spending. This is not the first time the trust has proved to be a deal-making thorn. Chewing gum maker Wrigley tried, more than a decade ago, to buy Hershey and failed. A joint bid from Nestlé and the then-Cadbury Schweppes was also scuppered. So much for a sweet deal.

Very broadly, this is why the proposed Mondelez-Hershey tie-up made sense: Mondelez is a global player and most of its choccie brands are sold outside the US, where its presence is limited. Hershey, whose shares have been trading sideways for about three years, is primarily a USbased business in need of international expansion (nearly 90% of its revenue was made in North America last year).

A scenario of “You scratch my back and I’ll scratch yours”, if ever there was one.

The hypothetical deal — a combination of the world’s No 2 and No 5 confectioners — would have created the biggest chocolate company in the world, leapfrogging Mars Inc (they make Skittles, M&M’s and Twix).

Nestlé and Ferrero come in at third and fourth, if you were wondering.

It’s worth noting the dynamics of the global chocolate market. Consumption patterns are changing on increasing health concerns about sugar — volumes have slowed as people eat less chocolate.

Have you seen the meme on social media that goes something like this: “Chocolate comes from cocoa, which comes from a tree. That makes it a plant. Therefore chocolate counts as a salad.” If only. Rising commodity prices (particularly sugar and cocoa butter), plus an escalation in transportation, labour, packaging and marketing costs have also meant that producing chocolate has become more expensive — cue shrinking Snickers and downsized Dairy Milk. Companies, feeling margin pressure, have reduced bar sizes — we call this “shrinkflation,” essentially offering less for the same amount of money or more. Lastly, consumers in wealthy countries have developed a taste for premium chocolate and more artisanal niche brands with perceived healthy benefits (think concoctions infused with Goji berries, pomegranate and Matcha).

A look at the cast of characters shows the slowdown at Hershey as more pronounced, while at Mondelez, lagging profit has led to pressure to trim fat from “call-aspade-a-spade” shareholders like Nelson Peltz and Bill Ackman. With a bidding war all but ruled out, a smaller target might be on Mondelez’s menu. There’s also a chance that it could be courted itself. And with the trust being overhauled, Mondelez may even find that sitting tight is a good idea — a fresh batch of directors may be more inclined to favour a buyout. It would have created the biggest chocolate company in the world