Nestle, Hershey Signal Bittersweet Year for Chocolate
Chocolate has kicked off 2018 on a somewhat sour note.
Nestle SA -- a name synonymous with candy despite efforts to conjure a healthier, trendier image -- is officially exiting the U.S. confectionery market. On Tuesday, the Swiss food conglomerate formalized a deal to sell brands such as Butterfinger and Baby Ruth to privately held Ferrero SpA for $2.8 billion, relinquishing its roughly 8 percent market share. 1
The transaction coincides with a pullback in Hershey Co. as two analysts in the past week recommended that investors dump the stock. One of them, Jason English of Goldman Sachs Group Inc., anticipates distractions from the company's own pending acquisition of Amplify Snack Brands Inc. Hershey agreed last month to a steep $1.6 billion deal for the maker of Skinny Pop popcorn, as the chocolatier -- like other packaged-food giants -- desperately tries to branch out while its core market grows at the speed of molasses.
Nestle, for its part, was still able to squeeze out an attractive price from Ferrero in what was said to be a competitive sale process. Ferrero is paying about three times revenue for the assets. That didn't translate into a bump in valuation for its publicly traded rival Hershey, whose stock slipped Tuesday for a fifth consecutive day. Many of its competitors, including Ferrero and Mars Inc., have the benefit of being private companies shielded from quarterly performance scrutiny that's whipsawed Hershey shares.
Nestle is smart to pivot and focus on its most promising lines of business. For those like Ferrero, tied to a slowing or declining space, it's best to get scale sooner rather than later.
But to step back for a moment, Hershey is still a desirable takeover candidate for any company looking to expand into sweets -- or even an investor like Warren Buffett. The Oracle of Omaha has a hankering for well-known American brands and his company, Berkshire Hathaway Inc., has billions waiting to be spent on his type of targets.
Nestle says it's committed to its other global chocolate products and is also keeping its "iconic" Toll House baking products.
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