The Hershey Company isn’t known for its deal-making appetite. But the American chocolate giant is willing to open up for a big deal in China.
Hershey announced on Thursday that it had agreed to buy an 80 percent stake in Shanghai Golden Monkey for about $584 million, taking control of a well-known producer of chocolate, candy and gum.
It’s by far the biggest acquisition by Hershey, according to Standard & Poor’s Capital IQ: All of the chocolatier’s previous deals were valued at less than $200 million.
Traditionally, the company has shied away from big deals. Its planned merger with the Wm. Wrigly Jr. Company, which would have been worth $12.5 billion, fell apart at the last minute in 2002 after its board decided not to sell. And after months of weighing a white-knight bid for Cadbury, potentially wresting it away from Kraft, the chocolate maker decided against making a move.
But Shanghai Golden Monkey fits squarely in Hershey’s deal criteria. The Chinese company is well known in its home market, particularly for its milk candy, with double-digit net sales and an expected $225 million in revenue this year.
The deal is eminently affordable for the American chocolate maker, which reported holding $701.3 million in cash and short-term investments as of Sept. 30. Moreover, the company will use money from its Netherlands subsidiary to pay for the acquisition, allowing the company to put overseas cash to more productive use than bringing it back to the United States and paying a big tax bill.
Hershey has been keenly focused on China, its main international market; in May, the American company opened an innovation center in Shanghai meant to help it develop the kinds of candy preferred by Chinese consumers.
Shanghai Golden Monkey also ticks off a number of other boxes: It makes only candy and snacks, and it has a significantly bigger reach in China.
“Shanghai Golden Monkey is the type of business we’ve been focused on for potential M.&A.,†said Humberto P. Alfonso, the president of Hershey’s international division and the executive who will oversee the new acquisition when the deal closes.
