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Hershey Case

In: Business and Management

Submitted By zhud01
Words 795
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Dongyang Zhu
BMGT440 Hershey Case Study

Hershey Food Corporation was initially founded by Milton Snavely Hershey, with the born of Hershey Chocolate Company. Soon after Milton Hershey learned that the secret of mass production for his chocolate lay manufacture of huge quantities of one item, standardized in design, and with a continuity of streamlined output that held down cost. Hershey had generated sales of $5 million by 1911, more than eight time the company’s first-year revenues. By 1921, Hershey’s sales had soared to $20 million.
In 1937, the quartermaster of the United States Army asked the Hershey Chocolate Corporation to develop a military-ration bar that could meet the needs of soldier in the field. By the end of World War II, Hershey was producing 24 million units of Field Ration D a week. More than three billion units of Field Ration D bars were made between 1940 and 1945, and were distributed to soldiers around the world. While other confectioners were forced to limit or even cease production during the war, the Hershey Chocolate Corporation was winning millions of loyal consumers, as well as a place in American history.
While enjoyed making money, Hershey always “wanted it used for the purpose of enduring good.” Hershey’s dedication to his employees and the residents of the town was steadfast. During the Great Depression, despite a 50 percent drop in sales, Hershey refused to lay off any local employees. Instead, between 1929 and 1939, he launched a series of massive building projects that resulted in the construction of most of Hershey’s major buildings, including the Hershey Community Center, the lavish Hotel Hershey, the high school, the Hershey Sports Arena, Hershey Stadium and the Hershey Chocolate Corporation headquarters, at 19 East Chocolate Avenue. Hershey Estate served the town well, but operated at a financial loss. During Milton Hershey’s lifetime, profit for the Estates division was never a primary consideration.
In 1909, at the suggestion of his wife, Kitty, the unschooled Milton Hershey created a residence and school for homeless boys. In 1918, three years after his wife’s death, the childless Milton Hershey bequeathed his entire personal fortune to the Milton Hershey School, including thousands of acres of land and all his stock in the Hershey Chocolate Company. The Hershey’s designated the newly created Hershey Trust Company as the main trustee for the school.
By 2002, the Milton Hershey School admitted both boys and girls without regard to race, and provided instruction from kindergarten through the 12th grade. MHS enrolled 1300 students, who lived on the school’s 1400-acre campus. Annual spending per student was $96000, which included housing, food, clothing, and medical care. MHS’s endowment, administered by the Hershey Trustee Company, had grown form its initial bequest of $60 million to approximately $5.4 billion, making it one of the largest educational endowments in the United States.
Over the years, both the composition and the size of Hershey Trust’s board of directors had changed. The trust’s board had expanded from 10 members in 1990 to 17 members in 2002, and the composition of the board had shifted toward education professionals, Hershey School alumni, and various public-sector leaders. During the past 16 years, Hershey’s stock had shown variable performance, but had significantly outperformed Standard & Poor’s 500 stock indexes by an average of 6.8 percent per year. Despite the overall strong investment performance of the trust and its gradual diversification away from Hershey shares, by early 2002 there was an increasing concern among board member that the trust was compromising its fiduciary responsibility by concentrating a disproportionate amount of the endowment fund in the shares of Hershey Foods Corporation. Therefore, during a meeting in March 2002, the trust’s board voted 15 – 2 to “explore a potential sale” of its holdings in Hershey Food. Six months after making its decision to explore a potential sale, the board of the Hershey Trust Company was examining two serious offers: a joint bid from Cadbury Schweppes PLC and Nestle S.A and an independent bid from the Wm. Wrigley Jr. Company.
However, just like baseball and apple pie, Hershey’s chocolate was an American icon. So when Hershey’s largest shareholder proposed selling the company in early 2002, the residents of Hershey, Pennsylvania, the state attorney general, legislators, and current and former Hershey employees reacted with alarm. For them the idea of selling the “Great American Chocolate Bar” was an insult to a beloved American institution and a threat to the principles on which Milton Hershey had built his company. The primary question for the boards’ 17 members was whether Hershey had been accurately valued by the bidders and, if so, whether the economic value created through the deal was consistent with their obligation to safeguard Hershey’s legacy of community involvement.…...

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