Hershey (HSY) is an odd sort of company. Its governance is not in the hands of its board of directors. A charity called the Hershey Trust, established in 1894, effectively decides how the confectionery company is run and who will run it. Hershey has its own board, but in some ways it is close to a symbolic body set up to satisfy U.S. Securities and Exchange regulations.
The trust is starting to push the maker of Hershey's Kisses and Reese's peanut butter cups to make a bid for United Kingdom-based candy and chocolates giant Cadbury (CBY). Kraft (KFT) has already made an offer of $16.5 billion, which Cadbury says is inadequate. According to an exclusive report in The Wall Street Journal, "The charitable trust that controls Hershey Co. is pushing the chocolate giant to launch a rival, $17 billion bid for Cadbury PLC that would be bigger and include more cash than what Kraft Foods Inc. has offered."
The Hershey bid would not only offer more cash than the one from Kraft but may even include shares in Hershey that could dilute the effective control of the trust. It is highly unlikely that the bid has been completely structured yet, and the Journal reports that an offer could be two weeks away.
The possibility of Hershey entering what would become an auction for Cadbury has to be deeply troubling for Kraft. It recently announced lackluster earnings and a forecast that impressed hardly a single soul on Wall Street. Investors have asked how a company that has done so poorly running itself can handle a major consolidation without risking additional problems with earnings.
At the end of the day, if Hershey is successful in buying Cadbury, Kraft may be the biggest beneficiary. Wall Street would be relieved that Kraft does not have to face the challenge of an integration with another company, and its shares would probably rise significantly.
Douglas A. McIntyre is an editor at 24/7 Wall St.