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Hershey's Board Has A Duty To Argue The Case For Why It Can Do Better Flying Solo

Hershey Company The NYSE:HSY, MDLZ - Hershey's Board Has A Duty To Argue The Case For Why It Can Do Better Flying Solo

Credit Suisse’s Robert Moskow believes the announcement by Mondelez International Inc MDLZ 4.32% that it has ended discussions with Hershey Co HSY 11.11% regarding a potential combination is likely to lead to a negative reaction to the latter’s stock.

Moskow maintains a Neutral rating on Hershey with a price target of $112.

Value Creation Needed

The analyst mentioned, “[B]roken deals like these often lead to material changes at the intended target and sometimes accelerated shareholder value creation.”

Moskow believes Hershey’s board now has fiduciary duty to create a strong business case, along with the management team, for why Hershey can create value as an independent entity rather than in combination with a multinational competitor.

“After two highly challenging years of category deceleration in the US and a reversal of momentum in China, we believe the company should explore accelerating its margin targets, rekindling its consumer-demand framework, or selling China into a JV,” the analyst suggested.

The Board’s Duty

Some investors might be skeptical about the board feeling obligated to create an accelerated plan, especially given the 80 percent control of stock of the Hershey Trust. However, the analyst believes the board takes its fiduciary duty very seriously.

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DateFirmActionFromTo
Aug 2016Bank of AmericaInitiates Coverage onUnderperform
Aug 2016Bank of AmericaAssumesUnderperform
Jul 2016Tigress FinancialDowngradesBuyNeutral

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