Hershey Foods - Arthur W. Page Society

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Hershey Foods
Time to Kiss and Makeup
Prepared by Research Assistants Laura A. Castrillo and Michaelynn M. McCoy under
the direction of James S. O’Rourke
Overview
• Introduction
• Company
– Milton Hershey
– CEO
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School
Trust
Key Events
Stakeholders
Challenges
The Players
Hershey Trust Company
Milton
Hershey
School
Milton
Hershey
School Trust
M.S. Hershey
Foundation
(non-profit)
Hershey Foods
Corporation
(31% owned)
Hershey
Entertainment
and Resorts
(100% owned)
Hershey Theatre
Hershey Museum
Hershey Gardens
Hershey Community
Archives
For Sale ?
“As painful as it is, we are asking the company to
put itself up for sale”
July 25, 2002
“Sale talk is over”
“The trust board has rejected all the bids it
received. It is asking the company to end the
process of exploring a sale”
September 18, 2002
Hershey Foods
Hershey Foods
• Located in Hershey, Pennsylvania
(pop. 13,000)
• Company Groups:
– Chocolate and Confectionary
– Restaurant Operations
– Other Food Products and Service
• 43% of the Domestic Chocolate Market
• $4.6 billion in sales in 2001
Milton S. Hershey
• Born in 1857
• Opened chocolate factory in Derry
Church in 1905
• Plans for building town at the same
time as building factory:
– Sweetest Place on Earth
– Cocoa and Chocolate Avenue
– Hershey Kisses lampposts
Milton S. Hershey
“If the wrong people or organization get
control, they can spend or give away more
money in a short time than I have made in
my life, to build monuments unto
themselves, for their own financial gains,
ego, and recognition.”
CEO Richard Lenny
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Became CEO in 2001
First outsider to run company
Former Group vice president at Kraft Foods
Cost cutting plans:
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close plants
cut jobs
outsource cocoa production
April 2002 six week strike over health care
• Profits for the January to March period rose 10%
“The whole air about him is the fact that he is just corporate greed”
Bruce Hummel, head of Hershey's union branch
“I’m here to do what the shareholders want me to do, which is to
increase shareholder value”
Richard Lenny
Hershey Trust Company
• Established in 1905
• Robert C. Vowler, Chief Executive
Controlled by 17 member board, 7 PA
residents
• School Trust is $5.4 billion
• 58% Trust in Hershey Foods Stock
– 31.4% of outstanding shares
– 76% voting
– Once the Trust's stake drops below 15 percent
the shares it owns, revert to Class A shares,
which have one-tenth the voting power
Hershey School
• Provides education, health care, room & board
for disadvantaged children
• 1,200 students
• 10,000 acre campus
• $65 million annual
budget ($96,000 per
student)
“The main object…is to train young men to useful
trades and occupations so that they can earn
their own livelihood” Deed of Trust
Key Events
• Early Spring 2002
– Lenny refuses to sell the company
– Proposes to sell Trust’s shares to the company
– Trust threatens to fire Lenny
“We’re going to sell this with or without you”
• July 25
– Hershey publicly announces it is seeking a buyer
Letter from Lenny to employees
“I'm terribly disappointed that we may not be
able to see it through as an independent
company. I came here to build our brands
and build our people, not to manage a
potential sale and subsequent integration
process. Having been your CEO for only
one year, I had hoped to work with you for
a long time to come.”
Key Events
• July 30 - Opposition begins
– “Milton Hershey must be rolling over in his grave. He believed
very strongly in the community of Hershey, in protecting it. I'm
all for food industry consolidation, but this one surprised me."
John M. McMillin, analyst at Prudential Securities
– “Derail the Sale" campaign
• planting signs on front lawns
• rallies
• petitions
– "We're not here to mourn; we're here to organize."
Ric Fouad, Head of the Alumni Association
Key Events
• August 8
– Government officials get involved
• August 17
– Bidding begins
• Wrigley ($12.5 billion)
• Nestle and Cadbury Schweppes ($11.2 billion)
• September 4
– Injunction prohibiting Sale
• September 17
– Trust abandons sale
Stakeholders
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Employees
Other investors
Community
School
Government officials
CEO Lenny
Trust board members
Competitors
Challenges
• Would it be better for the long-term financial
health of Hershey Foods, its employees and
the Hershey School if the company were
sold rather than remain in the hands of the
trust? Does the trust’s decision to forgo
selling the company enhance Hershey’s
stability?
• What are the critical issues facing Richard
Lenny as he positions Hershey Foods for the
future? Who are the constituents he must
address?
Challenges
• How does Lenny approach the strained
relations with investors? What should his
message be?
• Is it possible for the community of Hershey
to exist in the 21st Century? What
responsibility does Hershey Foods have to
the community?
Challenges
• Could the outcome of the sale process
have been different if the Hershey Trust
Company had anticipated public reaction?
If so, what message and approach should
they have employed?
What’s happened since?
• Reformation of Trust board -17 to 11 members
– 10 board members (including 7 members who twice
voted to sell the candy maker) are leaving the board
– Adding 4 new members who live locally
– Added Richard H. Lenny, Hershey Foods CEO
• Majority of 6 new members must live in central
Pennsylvania
• Bill passed placing restriction on charitable trusts
wanting to sell their holdings
• Mike Fisher lost his election bid for governor
What’s happened since?
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