REFILE-UPDATE 1-Trust chair sees change, but no sale, at Hershey

Mon Jun 16, 2008 7:25pm BST

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(Refiling to fix typographical error in 3rd paragraph -- 'buy' instead of 'by') (Adds stock activity)

CHICAGO, June 16 (Reuters) - The chairman of the trust that has voting control over Hershey Co (HSY.N) said change is needed to boost the company's performance and improve the largest U.S. chocolate maker's position for long-term growth, but he ruled out a sale of the company.

Hershey Trust Chairman LeRoy Zimmerman said the trust, which controls 78 percent of the voting stock in the company, had hired merger-and-acquisition advisers more than a year ago to look at strategic options for Hershey.

Hershey shares fell more than 6 percent on Monday to their lowest since April 25, just days before Hershey rival Mars Inc said it would buy Wm Wrigley Jr Co WWY.N, which raised speculation Hershey might need to merge or form a joint venture to compete with Mars.

Hershey management is scheduled to meet with analysts on Tuesday to update them on the company's strategy.

"Transformational merger-and-acquisition transactions are but one of multiple strategic growth options the trust has been continually assessing, in coordination with the company board, as part of the trust's ongoing process and due diligence," Zimmerman wrote in an opinion piece published Sunday in the Harrisburg, Pennsylvania Patriot-News. (here#continue).

Zimmerman also repeated that the Trust will not, and legally could not, give up its control of the company.

"The trust is committed to retaining its controlling interest in the company," he wrote. "This is first and foremost a principle grounded in Milton Hershey's philanthropic legacy. It also is rooted in constraints of Pennsylvania law and practical business imperatives. Simply put: We will not sell The Hershey Co."

The Hershey Trust, which despite its control of the company holds shares representing only about 30 percent of the economic interest in Hershey Co, was established by Hershey founder Milton Hershey to serve as trustee for the boarding school that bears the Hershey name.

Last year the trust, unhappy with the financial performance of Hershey, arranged an overhaul of Hershey's board.

In the wake of the Mars-Wrigley agreement, analysts have said Hershey needs to make some sort of alliance with another company to better compete with Mars, which will become the world's largest candy company.

But the Trust's stance that it must maintain control of Hershey likely precludes a takeover by a company such as Cadbury Plc CBRY.L. Instead, Hershey may need to opt for a joint venture with another company to help grow its international business, analysts said.

Zimmerman's remarks on Sunday appear to allow for such a move, although he said the question of what growth options the company will pursue is "an ongoing matter."

"There are meaningful options for dynamic long-term strategic growth that do not require selling the company. And it is toward those options that the trust and the company board are focused," he wrote.

Hershey shares were down $2.36 at $35.97 on Monday afternoon on the New York Stock Exchange. (Reporting by Brad Dorfman; editing by John Wallace and Andre Grenon)