In January 1979, The Hershey Company ventured into the restaurant business. For the sum of $165 million, Hershey bought the Friendly Ice Cream (FIC) Corporation, a chain of family restaurants primarily in the Northeast and Florida. As the name implies, one of the Friendly featured items is ice cream. At the time, Hershey paid a 40 percent premium to FIC stockholders. The rationale was simple: diversification. During the 1970s, the price of cocoa whipsawed, and Hershey management felt that it was time to diversify. “After all, people have to eat, and if they don’t eat at home, they’ll eat out!”

If diversification was the driving motive, and as a Hershey stockholder, I was concerned about the “evil” cocoa ...

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