Deal Reporter
The Hershey Company (NYSE:HSY) defended its M&A process on Friday in response to a question about the company's track record on international deals.
During the Q&A session of the 2Q15 earnings call on 7 August, Deutsche Bank's Eric Katzman noted disappointing performance from Shanghai Golden Monkey (SGM), in which Hershey bought an 80% stake last year, and pointed to previous difficulties in China and Europe. He asked CEO John Bilbrey if Hershey was missing something culturally or in its due diligence process that forced the company to deal with problems after transactions were made.
"If you were to put it within the context of our due diligence process, I don't think we've gone about it in any errant way," Bilbrey replied. "We use the best advisors, the best names and family names that you can think of in terms of who you would partner with on looking at these things."
The CEO noted that Hershey passes on some potential targets once it gets "under the hood" and discovers issues.
"So in terms of rigor and so forth, I don't think there's any lack of that. Our goal is to get as many of these things right as we possibly can," he said.
While Bilbrey said some of the analyst's comments were "certainly pieces of the history," he countered by noting the previous acquisitions of Brookside, Krave and Pelon. "We've had some joint ventures, some have gone quite well, and others we've chosen at particular times to exit from," Bilbrey added.
In its earnings press release on Friday, Hershey said it performed an initial assessment of the fair value of the SGM business as a result of several contributing factors, and had recorded an initial non-cash goodwill impairment charge of USD 249.8m. SGM net sales and profitability in 2015 have been "significantly lower" than initial expectations, Hershey said.
The company announced in December 2013 it would acquire 80 percent of SGM, a privately held confectionery company. The purchase closed in September 2014. Hershey anticipates completing the acquisition of the remaining 20% of SGM in 4Q15, but the timing and terms will be informed by the results of the ongoing assessment, it said in its earnings press release on Friday.
For the SGM deal, Hershey used Lazard, Skadden Arps and in-country law firm Fangda Partners. Other transactional advisors used by Hershey in recent years include JPMorgan and Simpson Thacher & Bartlett, according to the Mergermarket M&A database.
Pennsylvania-based Hershey has a market capitalization of USD 20bn.