Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Hershey Board Fought Off a Hostile Takeover
Transcript
- Lucas: If these conversations have moved your work forward in some small way, that's the goal. And the reason we can keep doing them without ads is listener support — buy me a coffee dot com slash fexingo. That's the only thing that keeps this ad-free. Okay, let's talk about one of the most fascinating boardroom battles in recent American business history. Luna: I think I know where you're going — the Hershey Trust versus Mondelez? Lucas: Exactly. June 2016. Mondelez International — the company behind Oreos, Cadbury, Ritz — made an unsolicited $23 billion offer for Hershey. At $107 per share, it was a 30% premium over where the stock was trading. And the Hershey board said no. Luna: Right, and that 'no' wasn't just a shrug. It triggered a cascade of lawsuits, a crisis in Harrisburg, and a debate that still echoes today about what a board actually owes its shareholders. Lucas: But before we get into the legal drama, you have to understand Hershey's capital structure. This is the key to the whole story. The Hershey Company has two classes of stock: common shares that trade publicly, and Class B shares that are held almost entirely by the Hershey Trust Company. The Trust controls 81% of the voting power. So when Mondelez made its offer, it wasn't really negotiating with the board. It was negotiating with the Trust. Luna: And the Trust's sole beneficiary is the Milton Hershey School — a private school for low-income children in Hershey, Pennsylvania, founded by Milton Hershey himself in 1909. So the Trust's fiduciary duty isn't just to maximize shareholder value; it's to ensure the school's endowment is secure. Lucas: Which is exactly what the board leaned on when it rejected the offer. The board's official statement said the proposal 'lacked credibility' and didn't provide a sufficient path to closing. But in private, the Trust's leadership was worried about something else: if Mondelez took over, the school's funding stream could be disrupted. The Trust had a long history of resisting any sale that might jeopardize the school's mission. Luna: Now, if today's breakdown of the Hershey boardroom battle was useful to you, this is the part where I mention that the show stays ad-free because listeners chip in — buy me a coffee dot com slash fexingo. Totally optional, but it's how we keep doing episodes like this without interruption. So back to the poison pill. Lucas: Right. So the board adopted a poison pill — technically a shareholder rights plan — that would have massively diluted Mondelez's stake if it tried to buy more than 10% of Hershey shares without board approval. That's a classic defense mechanism, but it's also a signal: we're not interested in negotiating. Luna: And Mondelez didn't just walk away. They went public. Mondelez CEO Irene Rosenfeld wrote a letter to the Hershey board arguing that the Trust's veto power effectively disenfranchised public shareholders. She pointed out that Hershey's stock had underperformed the S&P 500 by about 40% over the previous five years. Lucas: That's actually a really strong argument. If you're a public shareholder in Hershey in 2016, you've seen the stock go from about $65 in 2011 to $90 in 2016 — that's a 38% gain. But the S&P 500 over the same period returned about 80% including dividends. So the board's job is to maximize long-term value. If a premium offer comes along, rejecting it means you need a credible plan to outperform that premium. Luna: And the board's plan was... what, exactly? They didn't have a public turnaround strategy at that point. Lucas: They did eventually. But first, they fought a legal battle. A group of shareholders sued the board, alleging that the Trust had breached its fiduciary duty by blocking the sale for its own charitable interests. The case went to the Pennsylvania Supreme Court, which ultimately ruled in favor of the Trust in 2017, saying the board had acted within its rights. Luna: But the court also said something interesting — that the Trust had to consider the interests of all beneficiaries, not just the school. That was a subtle but important clarification. Lucas: It opened the door for the board to pursue a middle path, which is exactly what they did. In late 2016, Hershey acquired Ripple Foods, a plant-based milk company, for about $300 million. That was the beginning of a broader diversification strategy. They also launched a cost-cutting program and increased marketing spend. By 2018, Hershey's stock had recovered to about $110, just above Mondelez's offer price. Luna: But then it plateaued again. From 2018 to 2021, Hershey's stock actually did quite well — it benefited from the pandemic comfort-food bump. But if you look at the five-year period from the Mondelez offer to 2021, Hershey's total return was about 45%, versus the S&P's 85%. So did the board actually create value, or did it just delay the inevitable? Lucas: That's the question that haunts this case. On one hand, the board protected the school's endowment. On the other hand, public shareholders left a lot of money on the table. And the Trust's structure means those public shareholders have almost no recourse. They can't vote out the board because the Trust controls the votes. Luna: So what's the lesson for other boards? I think it's this: if you're going to say no to a premium, you need a credible plan B. The Hershey board's plan B took two years to materialize, and even then, it only barely matched the offer's value. Lucas: And there's another lesson: governance structure matters. The Hershey Trust model is unusual, but it's not unique. You see similar structures at companies like the Washington Post, the New York Times, and even Ford — where a special class of shares gives a family or a trust outsized control. Those companies can make long-term decisions that public markets might not like, but they also risk entrenching management. Luna: It's a trade-off. And in Hershey's case, the trade-off was explicit: the school's mission over shareholder returns. The board chose the school. Whether that's right or wrong depends on your perspective, but at least it was transparent. Lucas: One more thing: the Mondelez offer wasn't the last time Hershey faced a takeover threat. In 2020, rumors surfaced that PepsiCo was considering a bid. Nothing materialized, but it shows that Hershey remains an attractive target precisely because of its governance structure. The Trust makes a takeover nearly impossible, which depresses the stock price, which makes it cheap, which attracts potential acquirers. It's a vicious cycle. Luna: And as of mid-2026, Hershey's stock is trading around $175, which is about 20 times earnings. That's below the average for consumer staples, which trade around 22 times. So the discount persists. Lucas: So the boardroom lesson from Hershey is nuanced. It's not a simple case of 'board does good thing' or 'board does bad thing.' It's a case study in how a board can use its structural power to prioritize a non-financial mission, but at a measurable cost to public shareholders. And that cost is real — it shows up in the stock price every day. Luna: I think that's a conversation worth having more openly in boardrooms. Not every board has a charitable trust, but every board has some tension between short-term market pressure and long-term strategy. Hershey just made that tension visible. Lucas: And made it permanent, because the structure isn't changing anytime soon. The Trust's control is written into Hershey's charter. So the trade-off is baked in. The question is: are shareholders okay with that? And if not, what are they going to do about it? Luna: Probably buy shares of Mondelez instead. Lucas: Exactly. Which is the market's way of voting. And that vote has been pretty clear over the past decade. But Hershey's board doesn't seem to mind.