After Bloomberg reported that Mondelez (MDLZ) is again exploring an acquisition of Hershey (HSY), Jefferies said the firm believes a potential deal is “higher probability than in 2016.” Mondelez generates only about 1% of sales from North America chocolate, leaving a company overlap “immaterial,” while the company has long sought to gain a U.S. foothold and increase its convenience store exposure, the analyst stated. Additionally, given structural risks and uncertainty facing Hershey, this could be “an optimal time” for Mondelez to “secure prized assets for a reasonable multiple,” the analyst added. However, the question now is whether Mondelez “really needs” Hershey given that the former has built attractive non-U.S. growth and margin businesses and acquiring the latter would simply increase its cocoa exposure and leverage to the U.S. chocolate market, which is “one of the most pressured chocolate markets globally.” The firm, which concludes that a “potential deal can easily be debated both ways,” has a Buy rating on Mondelez and Underperform rating on Hershey shares.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
