Swiss chocolate maker Lindt has announced today that it acquired Russell Stover, the very popular North American chocolate producer behind the Whitman's and Pangburn's brands, as well as its namesake brand, for an undisclosed amount of money. This is the largest acquisition in Lindt's history and it will provide a huge boost to its North American market share, even greater than the share gained in its 1998 acquisition of Ghirardelli. 

Russell Stover hired Goldman Sachs earlier this year to find a buyer for the company, so the deal is not surprising, but Lindt was not seen as the frontrunner in the race, especially with how active The Hershey Company (HSY -0.50%) has been expanding its worldwide presence. Regardless, this acquisition makes Lindt the third largest chocolatier in the United States, behind Mars and Hershey. Let's dig deep and decide if Hershey investors should be scared or if its brands are too strong for Lindt to steal market share.

Source: Wikimedia Commons

A growing force in the North American market
In 2013, Lindt reported $943.2 million in sales in North America, a 10.5% growth from 2012, and this represented 30.1% of its total sales. Here's a breakdown of the company's sales by region:

Source: Lindt & Sprungli

As you can see, North America is a very large portion of Lindt's overall sales, but this still pales in comparison to Hershey's $5.96 billion in sales in 2013 in the United States alone. Here's how its sales break down by region:

Source: S&P Capital IQ

Lindt's acquisition of Russell Stover is expected to add an estimated $500 million in revenue in 2015, which would bring its revenues to an estimated $1.5 billion; however, Hershey is expected to surpass $6.25 billion in sales in the United States in the same time frame, so Lindt will still be in a distant third place in this market.

There is no doubt that Lindt's acquisition of Russell Stover will greatly increase its North American presence, but I do not see the acquisition alone as enough to threaten Hershey; I believe this because Hershey has battled Russell Stover and numerous other brands for market share for decades and it has continually delivered. With this being said, Hershey has shown a deep commitment to growing its share in international markets over the last few quarters, so could Lindt be striking while Hershey is focused elsewhere?

Does Hershey's international focus make it vulnerable?
Over the last two years, Hershey has made a strong push to grow its international market share and the Russell Stover acquisition may be Lindt's way of trying to catch Hershey off guard.

Source: Shanghai Golden Monkey Food Co.

Hershey's strong push began in early 2013, when it released a new line of caramel candies in China, which are very popular in the region. A test run of these new candies was highly successful and the company noted it would be followed with wider distribution in China as well as in the U.S. market in 2014. Just two months later, Hershey announced it had acquired an 80% stake in the Shanghai Golden Monkey Food Company for $584 million, which gives it massive exposure to the Chinese market and gives it a proven distribution channel for existing and future products. At this point it was clear that China, and its more than 1.35 billion residents, was one of Hershey's primary targets.

Also, in early 2014, Hershey announced that it would be expanding its Jolly Rancher line of products into India. The company noted that it tailored its flavors for the palates of the world's second largest population, showing that it was not going to simply bring its products in blindly. 

Source: The Hershey Company

All of this may make it seem like Hershey is focused on the largest international markets and that it is not keeping an eye on its backyard, but this is not the case. In fact, Hershey has released several new products in the United States in the first-half of 2014, including York and Kit Kat Minis, Hershey's Spreads, and Hershey's Snacksters, and there are many more product launches planned for the second-half of the year.

All in all, I actually believe Lindt acquired Russell Stover just to try and keep up with the likes of Hershey and Mars; the company will need to do much more than that though, like releasing innovative new products, while also increasing its already large market shares in growing European nations like Germany, France, and Switzerland.

What should Lindt focus on today?
The primary focus for Lindt in the months and years ahead should be maximizing the cost synergies between its current operations and those of Russell Stover.

Source: Russell Stover

The company could easily combine some of the operations of Russell Stover and Ghirardelli in the United States, which would reduce overhead and operational expenses, as well as allowing it to reduce the number of employees and executives within the companies; this would also allow Lindt to choose the top candidates between the two companies to fill the positions in need, maximizing its experience and efficiency. In all, I believe Lindt could achieve cost synergies of over $250 million over the next few years, which it could use to pursue other acquisitions or put into the research and development of new products.

Furthermore, Lindt should immediately add its current brands to Russell Stover's 37 company-owned retail stores, while also adding Russell Stover to its existing retail stores. This will allow the company to increase the offerings to its entire customer base and add variety to draw in additional customers, which would maximize the potential of each retail store.

Should Hershey investors be scared?
Lindt's acquisition of Russell Stover was a great move for the company, but it should not be seen as a huge threat to The Hershey Company. Even with the combined revenue of $1.5 billion in the U.S. between Lindt's existing brands and Russell Stover, it is still tiny compared to the $5.96 billion in sales Hershey posted in the United States in 2013. With this being said, the market has reacted to the news by sending Hershey's shares more than 1.5% lower in the trading session and they now sit over 12% below their 52-week high and have a yield of approximately 2%. I believe Foolish investors could use today's weakness as a buying opportunity because Hershey's long-term potential far outweighs any short-term negativity.