[FOUNTAIN]Can loyalty backfire?

"Be faithful to Hershey. He was good to us."

In 1937, residents of Hershey, Pennsylvania, rallied under this catchphrase to protest a strike that had shut the town's chocolate factory. The Hershey Foods Corp. resumed operations a few days later thanks to the rallies. The locals, of course, were referring to Milton Hershey (1857-1945), the founder of the chocolate manufacturing company.

Mr. Hershey's success came in 1900 when his product, a chocolate-coated caramel, became a hit on the market. He founded Hershey Foods and built a large chocolate factory in his hometown. Mr. Hershey also built theaters, dance halls, gymnasiums, a zoo and churches for his employees to attend free of charge. He donated money to build electrical and water-supply facilities, and he provided financial assistance for the local newspaper.

His hometown was renamed Hershey in 1906. He had so attentively looked after the welfare of his neighbors that they blocked the strike in 1937. Today, half of the town's 12,000 residents work for Hershey Foods and the remainder live on tourism; the chocolate company is now an American icon.

Hershey's went through hard times this year. The Hershey Trust Company, a philanthropic foundation and holding company, decided to sell Hershey Foods in July to reform the company management and diversify its assets. Hershey Foods last year earned $200 million net profit on sales of $5.46 billion. But during the past three years, sales and profits have been dropping. This made the holding company nervous, since the majority of its assets were invested in Hershey Foods shares.

Negotiations to sell Hershey Foods seemed promising when Nestle, the world's largest food company, decided to buy Hershey at a handsome price. Nestle offered $11.5 billion, or $82 a share, when Hershey stock was selling at roughly $60 a share.

But one hurdle remained -- the residents of Hershey. The workers and locals, who were afraid that the sale might hurt their welfare, rallied to prevent the sale.

After giving careful consideration, Hershey Trust called off the sale. The residents won. But the Economist, the British newsweekly, predicted that the residents would ultimately regret their decision. Without Nestle's network and capital, Hershey Foods may have lost its opportunity to rise to prominence overseas and that may ultimately result in the company's downfall.

Were the locals being faithful to Milton Hershey? No one knows yet, but they will soon find out.

The writer is a JoongAng Ilbo editorial writer.

by Sohn Byoung-soo