Mondelez, the owner of Cadbury, is reportedly exploring the acquisition of Hershey, a leading US confectionery company. According to sources from Bloomberg, Mondelez has initiated preliminary discussions regarding a potential merger. However, the talks are still in nascent stages and there is no assurance that an agreement will be reached.
Mondelez’s interest in Hershey comes amidst contrasting financial performances of the two companies. Hershey recently reported a decline in quarterly sales, which dropped to roughly $3 billion (£2.3 billion), attributed to weakened demand. Conversely, Mondelez’s sales showed resilience, registering almost a 2% increase, rising to $9.2 billion (£7.2 billion).
The discussions between Mondelez and Hershey echo a similar event from 2016, when Mondelez attempted to purchase Hershey. During that period, Hershey rebuffed Mondelez’s offer of $23 billion (£18 billion). The current revisit of acquisition talks by Mondelez suggests a continued strategic interest in expanding its portfolio through mergers.
This potential acquisition emerges against a backdrop of broader industry challenges, primarily influenced by the rising costs of key ingredients like sugar. Earlier this year, significant global sugar price hikes were forewarned by industry experts. Climate issues, including dry spells in India and drought conditions in Thailand, have led to underproduction, impacting sugar exports. Mondelez’s CEO, Dirk Van de Put, remarked on the inevitability of price increases for consumers, stating that reducing product sizes or ‘shrinkflation’ would not adequately address inflationary pressures.
While the rest of our input costs remain relatively stable for the upcoming year, the escalation in sugar and other raw material costs necessitates further price adjustments,” Van de Put stated.
The potential merger between Mondelez and Hershey, though uncertain, signifies a strategic move by Mondelez in the realm of confectionery. As the industry grapples with economic pressures and rising costs, such acquisitions could play a crucial role in shaping future market dynamics.
