HSY - Milton could not possibly have seen the world as it is today

As I understand it, Milton Hershey left instructions to fund his charity "in perpetuity." As a result, the Hershey Trust takes the long-term view and doesn't factor in the in the daily ebbs and flows of the company and the market place. I'm reading between the lines of some recent statements made by members of the Hershey Trust.

How about looking at the past 30 years and the changes in the competitive landscape, which have make Hershey a niche player in the global confectionery market. Hershey competes against some of the strongest food and confectionery companies in the world. And the competition is only getting stronger following the recent merger of Mars-Wrigley and Cadbury's decision to focus on its core business. Also lurking are Nestle and Kraft Foods, who just love the fact that Hershey is in such disarray.

I don't think Milton Hershey would be very happy to see the mess his company is in. If he only knew that his company had become such an American Icon only to then be potentially destroyed by political pressures and archaic thinking. Today, the State of Pennsylvania claims a special relationship with the Hershey Trust, since it regulates charities. As a result, the trust can stand behind management mediocrity, citing Milton Hershey's intentions and state laws as a reason not to sell the company.

Hershey's competitors are adapting to the global nature of the confectionery business while Hershey is standing still. Although the company's new vision, which was revealed last week, is headed in the right direction, it will not create significant value for the trust or more importantly, shareholders. The U.S. confectionery business is not growing and the competition is tough and will not cede market share to anybody. So competitively, Hershey is in a position of weakness and does not hold a very good hand. The only way out is through a deal with Kraft, as the uproar that would be felt in Hershey, PA if a foreign firm bought Hershey would make such a deal nearly impossible. If Kraft were to buy a controlling stake in the company, the trust could get a couple of board seats, Milton's charity would be funded in perpetuity and the people of Hershey, PA would be happy.

The longer this goes on the worse it becomes for the trust and the people of Hershey, PA.


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