'Sweetest little town' blocks sale of Hershey

An American confectionery institution is safe, for the time being at least, after an obscure court for orphans in Pennsylvania blocked the sale of the venerable Hershey chocolate company to any buyer, US or foreign alike.

The controversy over Hershey, maker of the omnipresent Hershey bar, erupted last month when the family trust said it wanted to sell its controlling interest in the 108-year old business, cornerstone of one of the most remarkable company towns in the world.

Half of the 12,000 inhabitants of Hershey in central Pennsylvania – the self-styled "sweetest little town in the world" – work for it. The town's main streets bear names like Chocolate and Cocoa, and its street lamps are shaped like Hershey's Hearts sweets. Almost all its amenities, including housing, electricity and sewage works, were provided by the company's legendary founder, Milton Hershey.

Hershey is the country's largest chocolate manufacturer, with sales last year of $4.6bn (£3bn). Small wonder that the local loyalty to the business sparked the outrage of Hershey's citizens when the trust let it be known it had put its 31 per cent stake in the company up for sale, with Nestlé of Switzerland and Cadbury Schweppes among the leading suitors.

Opponents of a sale simply do not accept the trust's argument that it needed to diversify its portfolio, more than half of which is currently represented by stock in Hershey Foods – and the strange structure of the trust gave them their legal opening.

Milton Hershey, who loved children but could have none of his own, established a school for orphans, which became the sole beneficiary of his trust when he died in 1945 at the age of 88. As a result, the local orphans court has jurisdiction over the trust, enabling Judge Warren Morgan to issue his order on Wednesday blocking the sale of the company.

The Hershey trust's assets total a massive $6bn (£4bn), meaning that the humble Milton Hershey School for Underprivileged Youths is backed by resources exceeded among US academic institutions only by the likes of the university juggernauts of Harvard, Princeton, Yale and Stanford.

Even so, the reprieve may be shortlived. Judge Warren's temporary restraining order will be challenged by the trust in a state court, and if that fails Wall Street analysts say it would be overturned as a violation of normal business practice.

If Hershey is to remain independent, the best hope for the town's anxious citizenry may lie in American anti-trust law. Nestlé, which initially was the most likely buyer, has said it expects a deal to be blocked by the federal authorities, at least unless the Swiss company sells other interests in America first.

But Nestlé is now believed to be in talks with Cadbury Schweppes whereby the two foreign firms might carve up Hershey's American facilities.

If that fails, Kraft Foods, a division of the cigarette maker Philip Morris, or Pepsico have been tipped as possible buyers for all or part of Hershey.