On Monday, Stifel shared insights on the potential acquisition of Hershey by Mondelez (NASDAQ:MDLZ), following widespread reports of Mondelez's interest in a takeover. With Hershey currently valued at $39.38 billion and maintaining a GOOD financial health score according to InvestingPro, the firm recognizes the strategic benefits Mondelez could gain from Hershey's strong brand presence, particularly for international leverage and breaking into the U.S. chocolate market.
The reports have not disclosed a proposed acquisition price for Hershey, but Stifel estimates that a reasonable transaction multiple would be in the mid-to-high teens, translating to a share price range of $200 to $225 for Hershey. Currently trading at an EV/EBITDA multiple of 13.68x and slightly above its Fair Value according to InvestingPro's analysis, Hershey's valuation metrics suggest room for premium pricing.
Stifel anticipates that such a deal would be only modestly accretive in the second year, not factoring in potential revenue synergies, and dilutive in the first year. The analysis assumes that Mondelez would increase its leverage to four times and issue around $25 billion in equity to fund the transaction.
Stifel compares the potential transaction to recent industry acquisitions, noting that the Mars/Kellanova deal closed at nearly a 16x multiple, while Smucker acquired Hostess at 17x. Historical purchases of high-growth assets have commanded multiples above 20x EV/EBITDA. The confectionery sector's historical growth and margin profile are considered highly attractive, with significant synergy opportunities forecasted for a Mondelez and Hershey combination.
The firm further speculates on the potential cost savings and revenue synergies that could arise from the deal. With Hershey's robust 44.46% gross profit margin and strong cash flows that adequately cover interest payments, Mondelez could see benefits in procurement savings, synergies in the U.S. market, and the ability to integrate its global confection brands with Hershey's extensive U.S. infrastructure.
The acquisition could also provide Mondelez with a portfolio of brands, such as Reese's, to bolster its international presence and fill market gaps. For deeper insights into Hershey's financial metrics and growth potential, investors can access the comprehensive Pro Research Report available on InvestingPro.
The Hershey Trust, which controls about 80% of the company and has historically been resistant to selling, plays a crucial role in any potential acquisition. Following Mondelez's failed attempt to acquire Hershey in 2016, the Trust underwent reforms. Stifel believes the Trust is now in a position where it could consider a new bid for Hershey.
In other recent news, Mondelez International has been rumored to be considering an acquisition of The Hershey Company (NYSE:HSY). Analyst firms, including JPMorgan, CFRA, and TD Cowen, have been closely monitoring these developments. JPMorgan has expressed caution due to potential obstacles to the deal, while CFRA upgraded Hershey from Sell to Hold amidst the speculation. TD Cowen maintained its hold on Hershey, with a steady price target of $190.
Despite the uncertainty surrounding the potential acquisition, Hershey has been maintaining strong financial performance. The company has upheld a 44.5% gross profit margin and has a record of regular dividend payments for over half a century. Hershey has also been diversifying its product portfolio, recently acquiring Sour Strips, a sour candy brand.
The Hershey Trust Company, which holds about 80% of the total voting power, is a significant factor in the acquisition talks. The final decision on any deal would greatly depend on the Hershey Trust's agreement to the proposed terms.
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