Hershey Co. (HSY)’s newly named interim chief executive officer, John Bilbrey, may emerge as the best candidate for the permanent job because the trust that controls the candy maker could scare off outsiders.
The Hershey trust, which has 80 percent of the voting power, clashed with Bilbrey’s predecessor, David West, and the board in recent years. The most recent battle happened when West resisted the trust’s entreaties to counter Kraft Foods Inc. (KFT)’s successful bid to acquire Cadbury Plc.
It’s hard to recruit outsiders when the CEO lacks independence, said Joel Koblentz, senior partner at the Koblentz Group, an Atlanta-based recruiting firm.
“If they cross the line between governance and infringe on leadership, they can’t attract the best candidates,” he said. “The best-qualified CEOs want to run the show.”
Bilbrey, who became operations chief last year and has helped establish Hershey brand products around the world, is a leading contender for the permanent job, according to Eric Serotta, an analyst with Wells Fargo Securities in New York.
The board will “work quickly” to find a permanent CEO, the Hershey, Pennsylvania-based company said yesterday.
“We thank David West for his leadership during a period of growth for the Hershey Company and express our confidence in J.P. Bilbrey who was also essential to that growth,” Leroy S. Zimmerman, the trust’s chairman, said in a statement.
The trust has been playing an active role since at least 2007, when it removed six directors, saying it was displeased with the company’s performance. That year, then-CEO Richard Lenny retired, and West was elevated from chief operating officer to succeed him.
For months in 2009, Robert Reese, then managing director of the trust, badgered West to merge with Cadbury. West and his bankers argued at the time that a takeover might undermine Hershey’s financial stability. West was concerned Reese was negotiating behind his back as he finally tried to make a deal in London, according to people who participated in the merger discussions.
In the end, Kraft acquired Cadbury for 11.7 billion pounds ($18.9 billion), and Hershey missed its best chance to quickly attain the U.K. candy maker’s global scale and its foothold in such fast-growing emerging markets as Latin America and India.
While some analysts said at the time that West would be pushed out, Reese left first, in October, after the trust declined to reappoint him. Reese, a former Hershey general counsel and scion of the clan behind Reese’s Peanut Butter Cups, filed a lawsuit, later withdrawn, alleging trust members violated their fiduciary duty in the purchase of a golf course.
Before he decided to leave, West managed to goose stagnant sales growth; last year, Hershey generated a 7 percent gain. Annual net income per share, at 93 cents in his first year on the job, will be $2.79 this year, analysts estimate on average.
West’s departure won’t change much at Hershey, said Kevin Dryer, assistant vice president at Gabelli & Co., which manages about $20 billion in assets, including Hershey shares.
“It still will have great brands, a leading position in the U.S. market,” said Dryer, who is based in Rye, New York. “They have been driving margin growth in the last few years and, going forward, they have pricing power.”
Hershey shares fell 39 cents to $55.09 at 4:21 p.m. in New York Stock Exchange composite trading. They have gained 17 percent this year.
West, 48, will join San Francisco-based Del Monte Foods on Aug. 15, the company said yesterday in a statement.
“After 10 years with the company, Mr. West felt it was the right time to take on the next challenge,” said Kirk Saville, a spokesman for Hershey. He declined to elaborate on the reasons for West’s departure.
A group led by KKR & Co. bought Del Monte Foods in March for about $5 billion, including debt. The company’s pet-food brands include Meow Mix, Kibbles ‘n Bits and Milk Bone dog treats, while the consumer products division sells fruits, vegetables and broth products.
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