Attorney general urges judge to block Hershey Foods sale
HERSHEY, Pa. (AP) – The state attorney general’s office on Tuesday urged a judge to block the proposed sale of Hershey Foods Corp. temporarily, arguing that it could harm the community that supports the nation’s largest candy maker. Jerry Pappert, a deputy attorney general arguing on behalf of Attorney General Mike Fisher, told Judge Warren G. Morgan that the trustees of the board that controls the company “have no accountability to the deed of trust for their investment decision.”
Fisher has said he opposes the proposed sale, contending that a devastating loss of jobs and tax base could result. He attended the court hearing on his petition for a temporary injunction, but did not testify.
Lawyers for the Hershey Trust Co. and Milton Hershey School have contended that Fisher has gone beyond the law to stop the sale, and that he has failed to show that it would damage the community. Jack Stover, an attorney for the Hershey Trust Co. and Milton Hershey School, the trust’s only beneficiary, argued that “under prevailing law, the attorney general’s office has no authority to ask for the temporary injunction.”
Stover displayed a pie chart showing that 58.6 percent of the Milton Hershey Trust’s assets are invested in Hershey Foods stock. He said that diversifying the assets is a “legitimate, prudent, purpose” and the trustees have every right to do so under the law.
Stover’s witness, James Bailey, an investment adviser to the trustees, said that their heavy investment in stock means that “their portfolio is twice as risky as the typical portfolio of a college or university.”
But former Hershey Foods chief executive Richard A. Zimmerman, testifying as a witness for the attorney general’s office, said that a buyer would likely slash jobs in Hershey to help make up for the cost of buying the company. Analysts say the sale price could range as high as $15 billion.
“There’s no doubt in my mind there would be some massive changes,” Zimmerman said.
The two sides were sparring over the July 25 announcement that the Hershey Trust Co. had ordered Hershey Foods executives to seek bids on the company in an effort to determine whether bidders would pay a high enough price to warrant selling the controlling stake.
The Hershey Trust Co. manages a $5.9 billion trust fund that finances the Milton Hershey School for disadvantaged children, the closest thing to an heir to the wealth of the childless chocolate magnate Milton Hershey, who died in 1945.
Fisher has said he was alarmed at the pace that the company appeared to be seeking a sale, and wanted to give lawmakers time to consider a change to the charitable trusts law that he is drafting.
That proposed change would allow trustees to consider the interests of a community before selling the controlling stake in a for-profit company, thereby releasing them from their perceived duty as trustees to maximize the value of the trust’s assets.
Fisher has also asked the Dauphin County Orphans Court to review any sale under his proposed change to the charitable trusts law in an effort to block it.
Fisher’s office recently completed an 18-month review in which high-ranking aides to Fisher review Milton Hershey School policies to ensure that the trustees were complying with the founding deed of the trust.
But some of the 17 trustees have also privately accused Fisher’s office of encouraging them to explore a sale, and expressed a sense of betrayal that Fisher then opposed the process. The trustees also had the advice of legal and financial advisers before voting overwhelmingly in March to explore a sale.
Fisher has countered that the trustees misinterpreted the advice of his deputies, who, he said, encouraged the trustees to diversify their holdings, but not divest the entire company. He said the trustees neither consulted him before voting, nor told him about the decision until July 25, when The Wall Street Journal reported on it.
The Hershey Trust Co., which has nearly 60 percent of its assets invested in Hershey Foods, argues that the trust’s argument for selling the candy maker is to diversify its holdings to protect the school, which provides nearly 1,300 students with free education, room, board, computers and clothing through 12th grade.
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