Patience will be a virtue for Hershey investors

CHICAGO (Reuters) - Investors who hope the unusual shake-up of Hershey Co's (HSY.N) board of directors will lead to a quick sale of the company or a radical move to boost the stock will likely be disappointed.

Instead, they will need to have patience as the overhauled board works with a new chief executive to turn around the fortunes of the maker of Hershey Kisses and Reese's peanut butter cups, which has been losing market share amid high costs and sluggish sales.

"Investors in the stock need to have a realistic long-term outlook in terms of what it takes to improve the business," Edward Jones analyst Matt Arnold said. "Those thinking otherwise -- there's a lot of cards stacked against them."

The overhaul on Sunday of Hershey's board was engineered by the Hershey Trust, which holds about 78 percent of the voting rights at Hershey, but only about 30 percent of the economic interest. The trust has said it has not been satisfied with the company's results, and the stock is down 16 percent this year.

Six Hershey board members resigned at the Trust's request, while 2 others resigned on their own.

While the new board includes people with investment banking experience, analysts cautioned that they are probably not being put in place to facilitate a sale.

BARRIER

The overhaul comes a little over a month after Hershey said Chief Executive Richard Lenny was leaving the company.

The Wall Street Journal reported at the time that Lenny had differences with the trust and later said representatives of the trust had met with Cadbury Schweppes Plc (CBRY.L) about a possible deal without bringing Lenny.

Analysts have said that a deal with Cadbury, which is splitting its candy and chewing gum business from its drinks business, could help Hershey expand internationally. But at the same time, they are skeptical that such a deal can be reached while still leaving the trust in control of Hershey.

The trust remains the barrier for investors looking for a big stock boost that a sale might bring.

Established by Hershey founder Milton Hershey to serve as trustee for the boarding school that bears his name, the Trust has said that Pennsylvania law requires it to maintain voting control of Hershey.

It was criticized in 2002 when it pushed for a sale of Hershey in an effort to diversify its holdings, and it eventually pulled the rug out from under a $12 billion deal to sell to Wm Wrigley Jr Co WWY.N.

Now, even with its stock up about 1 percent at $41.49 on Monday, Hershey has a market capitalization of about $9.59 billion.

"The trust's much more recent public statements about keeping majority control of the company militate against a sale of the company, in our opinion, even presuming there were an eager buyer in today's tough financing market," Wachovia's Jonathan Feeney said in a research note.

UBS analyst David Palmer values the company at $60 or more a share in a sale, but also agreed that a sale is not likely.

Instead, the new board, which includes the former head of Goldman Sachs' investment banking business, the managing director of private equity firm Carlyle Group and a former CEO of Kellogg Co (K.N) could help CEO-designate David West find smaller deals, joint ventures or alliances, Palmer said.

"These members could help CEO West find a strategy or deal that will help Hershey find cost and revenue synergies," he said.