Hershey-Mondelez $107 Takeover Bid: Five Thoughts

Five thoughts on the news of a possible Hershey takeover beyond what the mainstream news has already reported:

#1. Rationally, Nestle should the highest bidder for Hershey stock. Due to an old agreement with Rowntree (a confectionary business now owned by Nestle), Hershey gets licensing rights to sell Kit-Kat in the United States. Those licensing rights terminate, and revert to Nestle, if a transfer of control occurs at Hershey. About $600 million worth of Kit Kats get sold in the United States every year, which flows through as $120 million worth of profits to Hershey shareholders. Assuming, in a takeover scenario, that those rights are worth 25x earnings, then Nestle ought to be willing to pay $3 billion more to acquire Nestle than any other competitor.

Being taken over by Nestle, and then getting those funds into Nestle stock, is an attractive investment strategy to keep in mind as you … Read the rest of this article!