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Mars buys Wrigley
The transaction is aimed at strengthening and diversifying Mars' position in the confectionery business
Mars, backed by billionaire investor Warren Buffett's Berkshire Hathaway Inc., reached an agreement on Monday to buy 117-year-old chewing-gum pioneer Wm. Wrigley Jr. Co. for about £11.5bn. Mars, will pay £40 in cash for each share of Wrigley share, a 28% premium over Wrigley's Friday closing price of £31.36, closely held Mars said in a statement Monday.
Chicago-based Wrigley with annual sales of £2.7bn, is known for its namesake Spearmint and Juicy Fruit gums as well as Life Savers. Mars is paying multiples of more than four times sales and 35 times Wrigley's 2007 earnings per share for those products and others, based on the deal price.
Wrigley will become a stand-alone, separate Mars subsidiary, in which Buffett's Berkshire Hathaway will make a minority investment, Mars said. Specifically, Berkshire Hathaway will make a £1.05bn equity purchase in Wrigley. It will be bought at a discount to the share price being paid to the company's shareholders. In a statement, Buffett said he has been "a big fan of Wrigley's business model for many years." His investment company has long owned San Fracisco-based See's Candies.
In addition to Berkshire Hathaway, financing for the transaction is to be provided by Goldman Sachs and J.P. Morgan. The deal is expected to close in six to 12 months. Wrigley's shares shot up 23% in late morning trading, reaching unseen levels for the stock. In its many decades as a publicly traded company, Wrigley's stock has never before approached the £40 a-share mark, adjusting for share splits.
The transaction is aimed at strengthening and diversifying Mars' position in the confectionery business worldwide. A deal would expand Mars' already considerable global reach as Wrigley generates 70% of its sales outside of the U.S. Its products also include Extra, Eclipse and Orbit gums. Mars is the world's largest chocolate maker by sales, with market share of 15%.
Chief rivals are Hershey Co. who last year entertained merger discussions -- or some sort of affiliation -- but came up short of sealing a deal. Since that time, Cadbury has set plans to split off its beverage unit, which includes Dr Pepper and 7UP. The transaction is expected to be done in May.
It also sold its movie-popcorn business as part of broader plan to dispose of non-core assets. Cadbury is a Wrigley rival, selling Trident Gum. In midday trading Monday, Hershey shares shot up 5%, while Cadbury's U.S.-listed shares rose 2%. Shares of Tootsie Roll Industries Inc. also were on the rise, up more than 5%. Pending completion of the Wrigley deal, Mars will manufacture everything from chocolates to chewing gum, drinks and pet-care products.
Some of its brands will include M&Ms, Snickers, Pedigree, Wrigley's chewing gum and Altoids breath mints. Mars will move its Starburst and Skittles brands to Wrigley, which will fold those sugar products into its Life Savers and Altoids portfolio.
The transaction brings together the Mars family of Northern Virginia and Wrigley family of Chicago. Bill Wrigley Jr. will remain executive chairman of Wrigley, reporting to Paul Michaels, global president of Mars. He will work closely with Bill Perez, Wrigley's president and chief executive, and the chewing-gum maker's current management team, Mars said. In recent years, Wrigley has expanded its offerings far beyond chewing gum. In 2005, the company bought from Kraft Foods Inc. its candy assets, including Altoids and LifeSavers, for about £750m.
Wrigley also recently purchased a Russian chocolate company. The family-controlled company -- whose name is emblazoned on Chicago's Wrigley Building, which it owns, and Wrigley Field, which it does not -- was close to a deal to acquire Hershey in 2002 for about £6.2bn, but talks fell apart at the 11th hour, The Wall Street Journal has reported.
Separately Monday, Wrigley's reported first-quarter net income rose 18% from a year ago to £84.6m, while sales jumped 16% to £728m from the year-earlier quarter. This story is from
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