JPMorgan's Questions About A Hershey, Mondelez Deal

JPMorgan analysts now believes the Mondelez International Inc (NASDAQ: MDLZ), Hershey Co (NYSE: HSY) deal could be 6 percent EPS accretive to Mondelez in 2017, as compared to the earlier estimate of 1 percent accretion.

The analysts maintain an Overweight rating on the Mondelez and a Neutral rating on Hershey.

The Price

With the June 30 bid of $107 being only a starting point, the analysts believe Mondelez could pay up to $134 before the deal becomes dilutive. This is one of the reasons the analysts are increasingly confident the deal was go through.

Related Link: The Mondelez Bid For Hershey Was Never Serious

“In fairness to MDLZ, we do not think the company would be willing to go to $134, because the idea is to create a deal that is accretive after synergies, not one that is neutral to EPS. But the message remains the same, that we expect further bids at higher price points,” the analysts stated.

Why Did Mondelez Bid?

The analysts also questioned whether this offer was in part an attempt by Mondelez to force a potential suitor’s hand, saying the possibility could not be dismissed.

In fact, with the Kraft Heinz Co (NASDAQ: KHC) merger going more smoothly than even the companies anticipated, it is likely Mondelez’s management might want to force Kraft Heinz’s hand sooner than later.

According to the JPMorgan report, this could be true in that management is possibly worried about Mondelez’s fundamentals disappointing going forward, given that emerging markets like Brazil and the Middle East are not doing as well as anticipated.

The analysts believe while it is possible that Mondelez does not want to be bought at all, making a bid for Hershey could be due to defensive reasons and/or “purely offensive” reasons.

“We are increasingly confident that a) a bid was made, probably for $107; b) the bid was half cash, half stock; c) Mondelēz offered to change its name to Hershey; d) Mondelēz promised relatively few layoffs vs. similar-sized deals; and e) Mondelēz offered to move its global chocolate headquarters to Hershey, PA,” the analysts added.

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