IN THE PLUSH homes along Chocolate Avenue, in the stores of Cocoa Street and in the parks on Reese Road, the sweet-smelling air of candy metropolis Hershey is thick with bitter indignation. The world-famous chocolate factory from which it derives its name and its very existence is on the block and the residents and politicians of the Pennsylvanian town could not be angrier. The Milton Hershey School Trust Fund, which owns more than 30 per cent of the stock and 80 per cent of voting rights in Hershey Foods, the nation's largest sweets manufacturer, wants to sell its stake. The announcement has not gone down well. It not only ignited rage in tiny Hershey, where the factory employs almost half the town's 12,000 population, but it also hit a sensitive nerve among the greater population of the United States, countless generations of which grew up or simply grew fat on its treacly products. And now it has become a political issue. A lobbying campaign resulted last week in Pennsylvania's attorney-general issuing an injunction banning the sale on the grounds that it would not be in the best interests of the town of Hershey. Economists have attacked the injunction as a dangerous precedent for free trade while analysts say financial prudence is being held hostage by sentimentality. Spiro Stefanou, a professor of agricultural economics at Pennsylvania State University's Smeal College of Business, whose campus is an hour's drive from Hershey, said: 'It's all about tugging at heart strings.' Hershey is far from the largest food concern in the US and its products are losing market share to competitors. So why such anxiety over what most outsiders see as just a chocolate factory? A small part of the reason is xenophobia. The main suitor so far has been Nestle, the Swiss food behemoth that has already muscled in and taken about 12 per cent of the US sweets market. Weekend reports suggested Cadbury might team up with Nestle in the bid. Top-level talks are under way between Cadbury's chief executive John Sunderland and Nestle's board. At a time when Americans are becoming increasingly sceptical of other countries' hardening attitudes towards their own, the sale of a national institution like Hershey to overseas bidders is viewed in some quarters as outright traitorous. 'Part of this is down to the universal feeling of distrust we all have of any newcomers in our community,' said David Richardson, professor of economics and public policy at the Maxwell Business School at Syracuse University in New York. 'People in a small, tight-knit community like Hershey would rather work with people they have known for years than with an absentee landlord. Created in 1894, the brand succeeded not least because its founder, confectioner Milton Hershey was such an inspiration. His vision of a workers' utopia prompted the creation of a self-supporting city beside the factory and bearing the same name. By World War I, Hershey's chocolate had become the only national confectionery brand in the US and to eat it was almost a patriotic duty. Soldiers fighting in Europe were packed off with bars of its product in their mess kits. Hershey's golden age passed just after World War II. Growth by domestic rivals like Mars and Wrigley, and foreign insurgents like Nestle and Cadbury, have nibbled away at its share of the confectionery market to a standstill commanding 31 per cent today on an annual turnover of US$4.6 billion. Its main products are chocolate bars, Hershey Kisses, Reese's Pieces and Jolly Rancher fruit-flavoured sweets. It is also the distributor of Nestle's Kit Kat in the US. At the heart of the standoff is the Milton Hershey School, formerly the Hershey Industrial School, an academy created by Milton to make industrious workers of Pennsylvania's disadvantaged youths. It is the main beneficiary of the Hershey fortunes, which were placed in escrow to be managed by the Trust. Today that endowment totals US$5.4 billion, among the largest educational trusts in the world. Every year it spends almost US$100,000 for each of its 1,200 students. Trustees have a fiduciary responsibility to get the best return on the endowment. But with more than half its assets tied to Hershey Foods, a company with little growth potential outside the US, Wall Street savvy trustees believe they could do better by selling its stake for what some analysts estimate could be US$10 billion. Investors welcome a sale too: they sent Hershey shares soaring to about US$80 from about US$55 on news of the plan. Selling the stock, Mr Stefanou believes, makes good sense. 'Hershey has suffered recently because of the narrow appeal of its product. Hershey makes a kind of chocolate that is only liked in America. In fact, its recipe would be unpalatable to anyone, compared to European chocolate, but, through marketing, Americans have been made to like it.' Efforts at selling its product abroad, even to Canada, have failed dismally. A factory set up in Ontario had to be refitted to produce smoother European-style chocolate because Canadian palates did not warm to Hershey's cocoa-rich brittle taste. Good business or not, the sentimental and nostalgic bonds the company has to the town and community are pulling in the other direction. 'Hershey is like a family with Milton as its patriarch,' said Mr Richardson. Mr Stefanou added: 'As with any family, the ties that bind get strained from time to time, and when money is at issue, the fissures open wider.' The school's alumni, a powerful lobby, are backing the sentimental objections. More importantly, they have the support of local conservative politicians, whose will prevailed in attorney-general Mike Fisher's injunction, a move made against the advice of his office. Economists believe the sentiment-driven opposition is mistaken. 'There is no suggestion that the Hershey name would suddenly disappear after a takeover,' said Mr Richardson. 'It would not be in the interests of business.' Mr Stefanou agrees, adding that most of Hershey's institutions to which the residents are so attached will remain in local hands anyway. 'Only the factories will pass to other people in a sale. The rest of the Hershey facilities - like a medical centre in town - are run by another part of the Hershey empire, which will not be included in any sale.' The next act in the saga will be played out tomorrow in a Pennsylvania court where the trust will seek to overturn the state's block on the sale. Few expect the state's manoeuvres to prevail.
