Moody's say that Hershey's majority stake purchase of China-based Shanghai Golden Monkey Food Joint Stock will not affect Hershey's A1 rating or stable outlook
December 20, 2013
– Moody's Investors Service said today that the Hershey Company's announcement that it will buy a majority stake in Shanghai Golden Monkey Food Joint Stock Company, Ltd. for approximately $500 million plus assumption of $85 million of debt, will not affect its A1 rating or stable outlook and is a long term positive for Hershey. The transaction will occur in two steps with the first 80% to be acquired in early 2014 for about $400 million (plus the $85 million debt assumed) with the remaining 20% to be acquired for approximately $100 million one year later.
Although Moody's views the acquisition multiple to be high, the deal has little effect on key credit metrics and will allow Hershey to expand its presence in China, an important growth market. Hershey plans to fund the deal with cash on hand, except for the $85 million debt assumption. Moody's estimates that Hershey's leverage will barely move from 1.47 times at September 29, 2013 to 1.5 times after the acquisition, and that EBIT margins will narrow just slightly from 19.4% to closer to 19%. The transaction offers Hershey the opportunity to expand its presence in China, not only by adding Shanghai Golden Monkey's products to its portfolio, but also by adding in-country production capabilities in China. This will enable Hershey to leverage the Chinese firm's more widespread and rural presence to make Hershey's products available in more than the three main markets Hershey has focused on to date.
"While we view the deal as a long term credit positive, the transaction is not without risks given the need to successfully manage a Chinese business, ensure food safety throughout the supply chain, and reap the benefits of Shanghai Golden Monkey's widespread distribution" said Linda Montag, Moody's SVP. But Hershey has identified China as an important growth market. It has invested recently in a research center in Shanghai, and is already present in several major cities with its chocolate bars, Hershey Kisses as well as a recently launched product called Lancaster, developed specifically for the Chinese market. This acquisition, if executed well, will help to accelerate its growth.
For further information please visit our website at www.Moodys.com.
The Hershey Company ("Hershey") is the largest producer of quality chocolate in North America and a global leader in chocolate and sugar confectionery. LTM revenues through September, 2013 were approximately $6.9 billion. Shanghai Golden Monkey is a Shanghai based, privately held confectionary company that produces both chocolate and non-chocolate confectionary products as well as protein bars and is expected to have 2013 sales of more than $225 million.
The key methodology used to analyze Hershey is the the Global Packaged Goods Methodology (published in June 2013).