Confection maker Hershey could be a warning for SpaceX investors, or highlight precisely why Elon Musk's ownership is a good thing...
econews. At first blush, there's nothing connecting the businesses of Space Exploration Technology (SPCX+0.45%) and Hershey (HSY-1.25%). One makes spacecraft, AI technology, and operates the Starlink satellite telecommunications network. The other makes candy bars. But when you dig into the ownership structure, you start to see the connection. Here's what you can learn about SpaceX from Hershey.
Who has the biggest voice at a company?
The CEO is likely to have the most influence on a business, but there are limitations. That's because the CEO actually works for the board of directors. And the board of directors is hired by the shareholders. So, if anything really big is going to take place, such as a merger or acquisition, the largest shareholders will have an important say. In the case of consumer staples maker Hershey, the largest shareholder is The Hershey Foundation.
Image source: The White House.
The Hershey Foundation has said no to multiple takeover offers. The foundation uses the dividends it collects from owning Hershey stock to support its philanthropic endeavors, so it is acting to protect the reliable income stream it receives. That may or may not be in the best interest of shareholders, noting that a buyout could lead to a sizable capital gain. But the real takeaway is that Hershey is beholden to The Hershey Foundation in important ways, as the foundation controls 80% of the company's voting power.
Elon Musk controls 48.4% of SpaceX's voting power. That's not as much control as The Hershey Foundation has at Hershey, but it is close enough to 50.1% to give him effective control over all decisions. Add in that he's the CEO, and Musk's position of power gets even stronger. If you own SpaceX, you are effectively investing alongside Elon Musk. What he wants to do is almost certainly going to get done. Mergers, acquisitions, and major capital investments are his to decide because it would be hard, if not impossible, for the board or shareholders to muster the votes needed to oppose Musk.
I'm happy with Hershey. Are you happy with SpaceX?
The real takeaway here isn't about Musk's control. It is to understand the implications of that control. I happily own Hershey stock because I'm a dividend investor looking to own a reliable income stock for the long term; I'm not looking for quick gains from mergers and takeovers. I believe my goals are well aligned with those of The Hershey Foundation.
Elon Musk's ownership in SpaceX is only a problem if you don't think he should have that much power to control the company. If you think giving Musk a free hand to do what he wants is a good idea, then you'll likely see his 48.4% stake as a reason to buy the stock.
CEO Bets $2.6 Billion on His Own "Highest Conviction" Stock
When a founder bets their personal fortune on their own company, smart investors pay attention.
The CEO of one California-based innovator just poured over $2.6 billion into his own stock—a move Motley Fool CEO Tom Gardner calls his "highest conviction" play today. This company is at the center of a booming $1.8 trillion industry, yet most of Wall Street is still looking the other way.
We’ve released a full report on why this rare buy signal is flashing right now.
