I just can't resist -- is Hershey (NYSE: HSY) by any other name as sweet? That's a question to ask, considering the fact that the company wants its shareholders to vote on a name change as well as a boost in shares.
As for the name change, I was just making a joke. Hershey wants to change its name to "The Hershey Co." from the official "Hershey Foods Corp." -- a moniker it's had since 1968, when it was branching out into foods other than its namesake confections.
Since that time, it has divested itself of such extraneous businesses as pasta and sauces and Friendly's restaurants -- one might wonder whether Hershey had indulged in a little "di-worse-ification," as Peter Lynch dubbed the acquisition of businesses that, instead of "diversifying" and boosting a company's growth prospects, manage to take away necessary focus.
Sure, at least Hershey was still dealing with edibles, but it seems apparent that over the years, the company recognized that chocolates and candies are its sweet spot (read more about its last quarter). I know that plenty of chocoholics like me consistently turn to Hershey for a quick fix -- who cares about price hikes?
When it comes to that name change, it seems to me that there's no problem -- other than maybe the obvious question as to what took it so long to knock "foods" out of its title.
However, another subject up for shareholder vote, according to the preliminary proxy statement, or Pre14A (available for free on the SEC's website), is that Hershey wants to double its shares outstanding. Apparently analysts are buzzing about the prospect that it might want to use those shares to make acquisitions, and a possible target that news sources mentioned was Cadbury Schweppes (NYSE: CSG).
As for doubling shares, though, shareholders might have mixed feelings about such a move. Sure, it is an avenue through which companies often make acquisitions. However, increasing shares outstanding has a dilutive effect on shareholders' interest in a company.
Of course, the opposite argument is, a well-planned acquisition can certainly increase earnings power, and in this case, give Hershey an edge against sweet rivals such as Wrigley (NYSE: WWY), Nestle, and Mars.
At any rate, current shareholders likely feel they have little to complain about, seeing how Hershey's shares have appreciated 30% over the last six months alone. One might wonder how long the party can remain sweet though, judging by the fact that the stock is trading at a rich 26 times earnings. As far as buying into Hershey, it's no bargain.
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Are you only here for the chocolate? Talk to other chocoholics on our Give Me all the Chocolate!! discussion board.
Alyce Lomax does not own shares of any of the companies mentioned. She's a bonafide chocoholic.
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