Mondelez made a takeover approach for Hershey, sources say

Cookie and snack giant Mondelez has made a preliminary takeover approach for Hershey, according to people familiar with the matter, a combination that would create one of the largest food and beverage businesses in the world.

Shares of the legacy chocolate maker shot up more than 13% on the news. Mondelez made a previous takeover bid for Hershey in 2016, which the company rebuffed.

Hershey hired advisors to help it respond to the interest, said one of the people. Mondelez made the approach shortly after Hershey reported third-quarter earnings that missed analyst expectations last month, said the person.

Hershey declined to comment on “market rumors and speculation.” Mondelez and the Hershey Trust, which controls roughly 80% of the chocolate maker’s voting stock, did not immediately respond to requests for comment. Bloomberg first reported Mondelez’s approach.

Hershey’s stock has risen 7% this year, raising its market cap to $40.49 billion. Prior to Monday’s move, shares had fallen 6% this year, hurt by concerns about the growing usage of GLP-1 drugs and soaring cocoa prices.

Share of Mondelez were down 2% in morning trading. The company’s stock has fallen 15% this year, dragging its market cap down to $82.22 billion.

Hershey shares are on pace for their best day since June 30, 2016, when the stock climbed more than 16% after the company publicly disclosed a $23 billion bid from Mondelez, which owns Oreo, Cadbury and Honey Maid. Hershey’s board unanimously rejected the offer, and Mondelez announced in August of that year that it was giving up on its pursuit of a deal.

Since its founding in 1894 by Milton Hershey, the company has remained independent, despite takeover attempts and even a strategic review in 2007 by its board.

Hershey’s dual-class structure gives holders of its Class B common stock, largely held by the Hershey Trust, 10 votes for every share. As a result, the Hershey Trust has “substantial control” over the company’s future, according to a research note from J.P. Morgan analyst Ken Goldman published Wednesday.

Pennsylvania law also gives the state’s attorney general the power to intercede on any deal that takes power away from the trust.

That is what happened in 2002, after the Hershey Trust announced it planned to sell its controlling interest in the company to Wrigley. Following criticism from the public, the attorney general stepped in to block the sale through the Dauphin County Orphans’ Court, which resolves legal issues related to charitable trusts, and 10 of the trust’s 17 board members departed.

Consumer packaged goods companies have been looking to deals to grow their sales after years of price hikes have put pressure on demand for their existing brands. For example, M&M’s owner Mars bought Pringles maker Kellanova this summer for $36 billion.