Europe’s two leading confectionery companies, Nestlé and Cadbury-Schweppes, are believed to be haggling over the small print of a joint bid for their US counterpart Hershey Foods.
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While US courts consider an appeal against a temporary injunction blocking any sale of Hershey, lawyers for Nestlé and Cadbury continue to discuss the small print of a joint bid for the company.
Cadbury is thought ready to put up £3bn (US$4.6bn) to buy back the three manufacturing plants it sold to Hershey in 1988, along with the US licence and distribution rights to its brands, which it also relinquished to Hershey in the late 1980s. These include the rights to Dairy Milk, Fruit & Nut and Creme Eggs, as well as the US brands Peter Paul Almond Joy and Mounds.
However, it is expected that the UK group will also want its slice of Hershey to include additional brands to help it build up its US portfolio, as well as a sales and distribution network.
This should suit Nestlé well, because if it bought Hershey in its entirety, it would have approximately 55% of the US chocolate market, a situation unlikely to meet the approval of the competition authorities. The Financial Times quotes sources close to the deal as saying that current negotiations see Nestlé taking a stake that would leave it with slightly less than the 43% of the US chocolate market which Hershey now controls. Competition authorities are far less likely to baulk at such a deal.
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By GlobalDataThe mechanics of such a deal are complex. Theoretically, cash-rich Nestlé could buy Hershey and transfer the agreed parts of the business to Cadbury at a later date. While this would avoid the significant tax burden that an immediate carve-up of the business would incur, competition authorities might withhold their approval, as Nestlé would have a 55% share of the US chocolate market in the interim, before it divested the agreed brands and rights on to Cadbury.
While speculation focuses on Cadbury and Nestlé, Wrigley and Kraft remain in the frame as possible bidders for part of the Hershey portfolio.
