Left alone on the dance floor, has Hershey avoided embarrassment or missed the opportunity of a lifetime? Kraft's success in winning over fellow chocolate maker Cadbury follows Mars' 2007 purchase of Wrigley. Both acquirees had been considered potential Hershey partners since the company decided against putting itself up for auction back in 2002.
The honest answer is that Hershey has had a narrow escape — the debt pile from buying Cadbury would have been crushing even if integration ran perfectly. But the real issue now is whether the company can come to terms with a low growth future. Investors should hope so.
Executives like increasing sales because they are easily measured and satisfy the ego. True, expansion brings opportunity for advancement as markets open up. Spreading fixed costs over a larger base of sales also helps to crank operating profits upwards. But what managers and shareholders should ultimately be concerned with is return on invested capital.
If Hershey lacks for markets offering higher growth, it must simply aim to give more cash back to shareholders.
Indeed, making the bulk of sales in North America is no bad thing. Geographical diversification can be gained far more efficiently by investors than companies. There may be a risk that a competitor becomes so large it can buy cocoa and milk more cheaply. Yet the reason global food companies have expanded so often by acquisition in foreign markets is that local distribution and branding matter.
With more than 40 per cent of the US chocolate market, it will not be easy to muscle Hershey off the shelves. Modernising production, improving efficiency and product innovation — the route in fact Cadbury took before Kraft came calling — is the best way for Hershey to dance to its own tune.
Obamacare
As speculation mounted on Tuesday morning that Martha Coakley would fail to secure the Democrats' 60 seat lock on the US Senate, companies whose futures hinge on a pending health care overhaul saw their share prices gyrate. Recently, health insurers Humana and Aetna rallied as much as 8 and 6 per cent, respectively while owners of hospital stocks like Tenet Healthcare underperformed the market by nearly 5 per cent.
The former would see their business shrink and become less profitable under Obamacare, particularly the more radical version passed by the House of Representatives, while the latter would have received compensation for services they now provide gratis to the uninsured.
Drugmakers like Pfizer bounced more mildly, given the damage-limiting deals they had already struck with legislators.
The remarkable 31-point swing between Barack Obama's margin of victory in deeply liberal Massachusetts 14 months ago and Coakley's showing was in large part a referendum on the Democrats' performance and agenda, in spite of spin from the White House pinning blame on the candidate.
Generic polling
Nationwide, generic polling suggests that Democratic candidates have lost 10 points of popularity since November 2008, making health care legislation a liability just 10 months before the entire House and a third of the Senate come up for re-election.
The White House still has a few political gambits for saving Obamacare in its current form. One is to rush a vote before Brown is seated in about two weeks. Another is for the House to simply pass the Senate's version of the legislation. Key congressmen have already expressed displeasure at both ploys.
It appears that Obamacare-lite is the most likely option. Even that may be a stretch given the shock of Coakley's loss. Either way, health insurance executives surely rejoiced at this 11th-hour reprieve.
— Financial Times
