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Change in the wind at Hershey

Bilbrey's retirement announcement comes in year of major moves

In a year of major headlines for The Hershey Co., the CEO’s decision to step down may not come as a major surprise.

What John P. Bilbrey’s retirement next year will mean for the Dauphin County-based candy giant remains to be seen, but the stars could be aligning for significant change at Hershey, which rejected a takeover bid from Illinois-based Mondelez International, maker of Oreo cookies and other big-name snacks.

But who will lead the charge?

“While Hershey intends to consider candidates from inside and outside the organization, executive vice president and COO Michele Buck strikes us as the most likely internal candidate, given her more than 11 years at the confectionery firm and 25 years in the consumer products space,” Erin Lash, an analyst with Chicago-based investment research firm Morningstar Inc., wrote in a note to investors.

Hershey has said only that the board has appointed a special committee to direct the search for a new CEO.

That committee is led by Pamela Arway, chair of the governance committee. The committee will review internal and external candidates with assistance from executive search firm Egon Zehnder.

Bilbrey, who took over in May 2011, will continue as non-executive chairman of Hershey’s board of directors, a statement indicated. He was elected chairman of the board last year.

Buck, president for North America, was named executive vice president and COO in June.

Whoever takes the reins will do so at a time when the company and the industry are facing pressure to boost performance in a highly competitive snack food sector that has seen increasing consolidation. Western consumers seek healthier options while developing markets offer the promise of potentially big revenues.

But those overseas markets,  as Hershey has learned in China, are not always easy to tap.

A busy year

Rejection of the Mondelez bid led to a drop in the company’s stock price, and speculation about whether corporate officials and the Hershey Trust Co. — let alone federal regulators and state officials — would ever allow a sale of the venerable Pennsylvania confectionery company to take place.

To put today’s news in context, here is what the past few months have brought:

• Illinois-based Mondelez, maker of Oreo cookies and numerous other snack other brands, initially made a $23 billion pitch, which was rejected by Hershey’s board on June 30.

• While both sides said very little to the press, it turns out that wasn’t the end of talks. Bloomberg reported that the original offer, at $107 per share, was later increased to $115 per share, citing a person familiar with the private talks, and who asked not to be identified. Hershey’s starting point was $125 per share, the source reportedly said.

• Amid those talks, one of the impediments to any future sale was buffeted by significant changes of its own. Following investigation into its operations and governance by the state Attorney General’s Office, The Hershey Trust Co. in July agreed to new restrictions, which will increase board size and limit members’ tenure. Under that deal, five current members, including Chairwoman Velma Redmond, will retire through Dec. 31, 2017.

The charitable trust is Hershey’s main stockholder, controlling more than 80 percent of the company’s voting shares, which gives the body significant leverage over any possible sale. Three members of the trust’s board also sit on the Hershey Co. board.

The Wall Street Journal in August reported that Hershey indicated no deal would be possible before a reconstitution of the trust next year.

Bilbrey’s retirement takes effect July 1, 2017.

• Finally, Mondelez backed away. Chairman and CEO Irene Rosenfeld on Aug. 29 said: “Following additional discussions, and taking into account recent shareholder developments at Hershey, we determined that there is no actionable path forward toward an agreement.”

• But Mondelez didn’t wait long to make its next move. Less than two weeks later, the company outlined plans to expand in the United States, including introduction of its Milka Oreo chocolate bars, a European favorite, in the U.S.

Related stories

Chocolate Town: CPBJ coverage of The Hershey Co. and Hershey Trust Co.

Stock considerations

For Hershey, which was reportedly seeking $125 per share, the past few months have seen a notable decline in stock values.

Its one-year peak was more than $113 on June 30. It dropped sharply after Mondelez walked away, and stood at $96.37 in late morning trading Friday.

Morningstar’s Lash said her group isn’t “making any changes to our $105 fair value estimate or our standard stewardship rating based on this news.”

“Our long-term outlook, which calls for sales growth to approximate 4 percent to 5 percent annually and for operating margins to tick up about 300 basis points to 22 percent by fiscal 2025, remains in place,” Lash wrote.

The company has a market capitalization of around $20 billion.

Roger DuPuis
Roger DuPuis covers Cumberland County, health care, transportation, distribution, energy and environment. Have a tip or question for him? Email him at rdupuis@cpbj.com.

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