Mars & Buffet to Buy Wrigley

Mars, With Buffett, to Buy Wrigley for $23 Billion (Update4)

By Chris Burritt
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April 28 (Bloomberg) -- Mars Inc., backed by billionaire Warren Buffett, agreed to buy Wm. Wrigley Jr. Co. for $23 billion to create the world's biggest candy maker.

Wrigley surged 23 percent in New York trading today after the companies said Mars would pay $80 for each of the gum maker's shares, with Buffett's Berkshire Hathaway Inc. providing part of the financing. Mars is offering 28 percent more than Wrigley's closing price on April 25.

The combined company will have $27 billion in annual sales and 14 percent of the world's candy market. Buffett will get more than 10 percent of Mars's Wrigley unit. Mars, the maker of M&Ms and Snickers, will add its Starburst and Skittles candies to Wrigley's Lifesavers and Altoids brands.

``It's a great price,'' said Thomas Burnett, director of research at New York-based Wall Street Access. ``Nobody is going to pay more than that. Who is going to go up against Mars and Buffett?'' He doesn't own shares of Wrigley or Berkshire.

Mars and Chicago-based Wrigley together will control almost 28 percent of the U.S. candy market, eclipsing Hershey Co.'s 24 percent share of consumer purchases, according to Euromonitor International Inc. in Chicago, citing 2006 sales. It will also become the largest candy maker, surpassing to Cadbury Schweppes Plc's 10.1 percent share.

The purchase will be financed with $11 billion from Mars, $4.4 billion from Berkshire and $5.7 billion from Goldman Sachs Group Inc. Berkshire will also buy a $2.1 billion stake in the Wrigley division once the purchase is completed.

Buffett Comments

``There's really nothing that can go wrong with something like the Wrigley and Mars brands,'' Buffett, 77, Berkshire's billionaire chief executive officer, said today in an interview on the CNBC television network. ``People are eating more and more of their products every day.''

Wrigley jumped $14.50 to $76.95 at 12:50 p.m. in New York Stock Exchange composite trading. The shares had gained 6.7 percent this year before today. McLean, Virginia-based Mars is the eighth-largest private company in the U.S., Forbes magazine said in November.

Mars ``is primarily a chocolate company and we are primarily a chewing gum company,'' Bill Wrigley, Wrigley's chairman, said today on a conference call. Combining is ``about being able to invest for the long term and grow our business. We are very pleased with our competitive stance.''

Sales at Wrigley may rise 9 percent this year, the slowest pace since 2000, according to the average estimate of nine analysts surveyed by Bloomberg. Competition from London-based Cadbury's Trident and Dentyne gums in the U.S. has eroded its market share.

Global Competition

Cadbury, the maker of Dairy Milk chocolate, bought Pfizer Inc.'s Adams candy unit for $4.2 billion in 2003 to become the world's second-largest maker of chewing gum.

Since November 2006, Mars has been winning market share in the U.S., while Hershey's has dropped, Alexia Howard, a Sanford C. Bernstein analyst who recommends investors sell Hershey, wrote in an April 11 note to investors.

``The deal appears to make strategic sense for Mars as it would give the global confection leader even greater scale as well as global distribution,'' Eric Katzman, an analyst with Deutsche Bank Securities Inc., wrote in a research note today before the announcement. Other companies may be forced to consider a merger, he said.

Hershey Strategy

The trust that controls Hershey discussed ways to merge the chocolate company with Cadbury in a way that wouldn't decrease the trust's ownership, the Wall Street Journal reported last year. Cadbury will split off its U.S. drinks unit May 7 and begin trading as two separate companies: Cadbury Plc in London and Dr Pepper Snapple Group in the U.S.

Hershey rose as much as 7.3 percent in New York trading, while Cadbury climbed 2.8 percent in London.

In 2006, Wrigley named former Nike Inc. chief William Perez president and CEO, the first person outside the Wrigley family to head the company.

William Wrigley Jr. began selling soap in Chicago in 1891 and eventually turned to chewing gum, an item he was giving away for free with each sale, according to Wrigley's corporate Web site. He introduced Juicy Fruit and Wrigley's Spearmint in 1893, two brands the company still sells today.

Mars History

Mars, founded in 1911 by Frank C. Mars, is still family owned. The company gets about 45 percent of revenue from chocolates and other snacks. Its biggest division is pet food, which sells Whiskas cat food and Pedigree for dogs, and accounts for 46 percent of sales, according to the company's Web site.

Berkshire Hathaway, based in Omaha, Nebraska, has about $40 billion to spend on acquisitions. Buffett has built Berkshire over four decades from a failing textile maker into a $195 billion holding company with businesses ranging from candy making to insurance.

Berkshire has stakes in companies including Coca-Cola Co. and Buffett ranks as the world's richest person, according to Forbes magazine.

Additional financing as well as advice is coming from JPMorgan Chase & Co, Mars said. Simpson Thacher & Bartlett LLP is acting as its legal counsel.

Goldman Sachs and William Blair Inc. provided Wrigley with financial advice. Skadden, Arps, Slate, Meagher & Flom, LLP served as legal adviser.

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina, at [email protected].
Last Updated: April 28, 2008 12:58 EDT
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