Sanjay Paul

Green Bay Press-Gazette
Sept. 3, 2002

Life in Hershey, also known as Chocolatetown USA, has not exactly been sweetness and light in recent months.

In April, workers at Hershey Foods Corp. staged a strike over management plans to cut health-care benefits. The strike, the first in 22 years, turned unusually rancorous, with the CEO Rick Lenny being forced to hire bodyguards while attending the annual shareholders meeting.

Since then, a more dramatic development, one posing a greater threat to Hershey Foods employees, has emerged.

A look at the past

First, a little history.

In 1894, Milton Hershey founded a chocolate company. Shortly thereafter, he broke ground for a chocolate factory and created the town of Hershey, building houses for his workers and laying out roads called Chocolate Avenue and Cocoa Road. In 1909 Mr. and Mrs. Hershey founded the Milton Hershey School for disadvantaged students.

The school, overseen by the Hershey School Trust, now has about 1,200 students. The Trust has an endowment of $5.4 billion, about half of which is held in Hershey Foods stock. And therein lies the source of the current crisis.

For, as the principles of finance suggest, a portfolio that is heavily dependent on a stock (or two or three) is a highly risky one. In the case of the Hershey School Trust, its fortunes, considerable though they are, are tied in large measure to the vagaries of one stock. With the recent decline in the stock market — and the well-publicized problems at large companies like Worldcom and Enron — the Trust decided to diversify its portfolio by selling off its holdings of Hershey Foods stock.

Residents not happy

The July announcement was greeted with consternation by the residents of Hershey. They feared that the buyers of the stock would shut down the chocolate factory, lay off thousands of workers and destroy the quaint little town.

As local opposition to the sale has mounted, politicians have entered the fray, determined to be on the right side of the fight. Thus, we see both the Democratic and Republican contenders for governor emphatically calling upon the trust to reconsider its decision.

So what is the trust likely to do? Sell to another confectioner like Nestle and risk tearing the town apart? Or, sell its holdings to Hershey Foods itself (in a massive buyback operation)?

Yet another possibility: they could sell the shares to the general public — a maneuver that is likely to yield a lower price (only big rivals like Nestle or Kraft, desirous of acquiring a controlling stake in Hershey Foods, would be willing to pay a premium for the stock), but yet would enable the company — and the town—to survive intact while providing the Trust with its needed diversification.

So we wait. The trust ponders the pros and cons of a stock sale and the workers of Hershey Foods toil under a cloud of uncertainty.

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Sanjay Paul is associate professor of economics at Elizabethtown College. He lives in Hershey, Pa. E-mail him at columns@greenbaypressgazette.com.