Possible Marriage of the Chocolate Giant & the Candy Man

On March 31, 2007, The Wall Street Journal reported on Hershey’s willingness to discuss a possible merger with its U.K competitor, the candy business of Cadbury Schweppes. Speculation of a future tie-up began shortly after Cadbury’s announcement that it plans to separate its candy and drink units, holding on to the candy side and more than likely selling its drink business to a private-equity firm. When questioned on the matter, LeRoy Zimmerman, chairman of Hershey Trust Co., told the newspaper that since “the board of the trust holds the majority voting rights” for the chocolate giant, it has a responsibility to listen to all potentially profitable future options.
Talk of a “Hershey-Cadbury candy combo” should not come as a surprise, considering that today’s “food makers are under increasing pressure to consolidate in order to boost their negotiating power with retailers.” Other likely beneficial reasons for a horizontal merger between these two complementary businesses involve cost reduction, a search for synergies in operation, and a more efficient pricing and/or improved service to customers. However, even though a joining of powers could be advantageous, there is a trade-off. Such a move would consolidate the marketplace position of the largest U.S. chocolate maker, Hershey, and the world’s largest confectionary unit, belonging to Cadbury, potentially producing something that could act like a legal cartel. Along the same detrimental lines, a merger could lead to plant closures and job losses due to the combination or movement of the two parties’ operations. (Fear of such events were actually the driving force behind the opposition from the Pennsylvania officials and community groups who forced Hershey to pull itself off the market just five years ago.)
Even though Zimmerman turned around and downplayed talk of a deal with Cadbury the very next day, he did discuss Hershey’s goals to cut costs, regain market share lost to archrival Mars Inc., and expand its global reach. Funny, these sound very similar to the goals that could possibly be accomplished by entering a horizontal merger with another powerhouse. In the end, even if the chocolate giant decides not to merge into marriage, it is speculated that the candy man will still pursue her!

http://money.cnn.com/2007/03/31/news/companies/hershey_cadbury/index.htm
http://money.cnn.com/2007/04/01/news/companies/hershey_nodeal.reut/index.htm