Hershey Foods Corporation: Bitter Times in a Sweet Place Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction:

The story of Hershey started in 1886 from Lancaster Caramel Company, which was later sold in 1900, projecting the future demand of chocolates. Hershey’s Chocolate factory was completed in 1904 as the biggest chocolate factory of that time.Like today, it was the largest producer of high quality chocolate at that time. Hershey did not confine its business only to confectionery, but also invested in the form of Hershey Estate. Initially, the company diversified significantly investing in Telephone Company, Hospitals and departmental Stores.

Hershey survived and even flourished during the Great Depression by not laying off its employees. Instead the company invested in building various projects including the Hershey High School and residence for the orphans and homeless. This High School was governed by Hershey Trust Company as the sole trustee. However, after the death of Milton Hershey in 1945, the company’s motive changed towards earning profits. It divested in various holding of the company including telephone, water and sewer.

In 2002, Hershey’s trust and Board of Directors decided and announced to divest and sell Hershey Food Corporation. This decision was based on the idea to provide more sustainable series of income to the school in contrast to volatility of stock of Hershey Foods Corporation. In response to this, a strong reaction from society was observed against the sale of the company.

In the view of announcement, the trust is now considering two offers. One from Wm. Wrigley Jr. Company and second, a joint offer, from Nestle and Cad bury Schweppes. Wm. is offering $12.5 billion whereas, the joint offer is of $10.5 billion. The board is not only deciding which offer to accept, but also that if they sell the company, then whether they will divert from the vision and principles of Milton Hershey.

Problem Statement:

Hershey’s trust and Board of Directors are deciding to sell the Hershey Foods Corporation in order to provide a sustainable, continuous and risk free source of income to Hershey High School, which is the main concern for the Trust. The board is in a dilemma regarding the two offers as to which offer to accept. Another dilemma for the board is whether or not to sell the company as this decision may go against the principles and the vision of Milton Hershey.

Analysis:

Hershey was established with the motive of not only earning profit, but it was incorporated with the passion possessed by Milton Hershey. The company has not only survived, but excelled in every difficult situation from financial difficulties to Great depression and World War. The company performed well not only in terms of specializing in their field of business, but also by diversifying their business and investing in other venture as well.

The company’s current financial position as well as projected data reveals positive and healthy cash flows which show that the company is not facing any liquidity issues. Moreover, the company’s strategies are playing well in terms of sales and revenues. The performance of the company is evident from the offers, which are made by some of the biggest and multi-national companies in the world.

The board’s main issue is that if they sell the company, then it will be in conformity with the principles of the Milton Hershey. The founder of the company never laid off the workers even in the worst situation. Employees’ job security was the main priority of Milton Hershey. His vision was more than just earning profit. He wanted and served the society in the best possible manner by providing them what they need.Therefore, if the board sell the company, then the new management may not adhere to the principles of the company, which are the basis of company’s existence and survival.Hershey Foods Corporation Bitter Times in a Sweet Place Case Solution

The company’s decision of selling Hershey is solely based on the idea of providing a sustainable source of income to the High School. The trust wants to divert its focus solely on the running of School. They want to avoid any risk in terms of volatility of stock of Hershey, which is the source of income for the trust. For this purpose, Hershey is considering two offers, each of which are discussed below.

Wm. Wrigley Jr. Company’s Offer:

Hershey is now considering selling a part of its business i.e. Hershey foods. The board of directors is now considering the two offers from two big and sustainable companies. The first offer is of $12.5 billion from Wm. Wrigley Jr. Company. This offer is profitable for the Hershey as compared to their Net Present value, which is $2.22 billion. Hershey can earn a profit of $10.28 billion, which is almost 78.4% more than their current NPV..................

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