Deals and IPOs

Mars, Berkshire to Buy Wrigley for $23 Billion


M&M's candy maker Mars has teamed up with billionaire Warren Buffett to buy No. 1 chewing gum manufacturer Wm Wrigley Jr for $23 billion, creating the world's largest confectionery company.

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The deal could force Mars rival Hershey and Britain's Cadbury Schweppes into a deal of their own. The two companies are reported to have talked in the past.

The Wrigley deal, announced Monday, will give Buffett's Berkshire Hathaway a minority stake in Wrigley, which will become a separate Mars subsidiary. Buffett's other food holdings include a stake in Kraft Foods .

Aside from Berkshire, financing for the deal is being provided by Goldman Sachs Group and JPMorgan Chase, Mars said in a news release.

At $80 a share, the deal represents a 28 percent premium over Wrigley's closing stock price of $62.45 on Friday. Wrigley shares rose 23 percent on Monday.

"The combined entity would have significant scale and breadth in a very attractive segment of the global food industry," Andrew Wood, analyst at Sanford Bernstein, said in a research note ahead of the formal announcement of the deal.

The combined companies would have a major presence in chocolate, gum and candy.

"If you combine these two, really, it creates just a true confectionery powerhouse with global scale and a strong presence in emerging markers," Morningstar analyst Mitch Corwin said.

The price also was attractive to a company that already traded at 23 times estimated 2009 earnings, the second-highest multiple in the Standard & Poor's U.S. packaged foods index .

"It's a nice premium to a stock that's already trading at the higher end of the packaged foods universe," Corwin said.

While Wrigley is a chewing gum giant, it has faced increasing competition from Cadbury's gum business, which includes the Dentyne and Trident brands.

Despite speculation about a deal between Cadbury, currently No. 1 in the confectionery industry, and Hershey, the Hershey Trust, which controls about 78 percent of Hershey's voting shares, has said Pennsylvania law requires it to maintain control of Hershey.

Wrigley has brands such as Extra and Eclipse, while privately held Mars is known for its M&M's, Snickers, Starburst and Twix.

Combined, Wrigley and Mars had a 14.4 percent share of the global confectionery market in 2006, compared with 10.1 percent for Cadbury, according to the most recent market share data from Euromonitor International.

While publicly traded, a large portion of Wrigley's shares are controlled by the Wrigley family, a Chicago presence whose name is on the Chicago Cubs baseball stadium and a well-known Michigan Avenue landmark building.

Midwest Roots

Both Wrigley and Mars have strong Chicago connections. Wrigley was founded in the city in 1891 and Mars currently operates three plants in Illinois, including a long-standing chocolate plant in the Chicago suburb of Oak Park.

The Mars family approached Wrigley with the deal, according to a letter to Wrigley employees from Chairman Bill Wrigley Jr, who would be executive chairman of the stand-alone Wrigley unit after the deal closes.

The deal is designed to help build Wrigley sales, marketing and distribution infrastructure, Bill Wrigley said, adding that Mars' non-chocolate candy brands like Starburst and Skittles will be added to the Wrigley candy portfolio, which includes Altoids and Life Savers.

The deal is subject to Wrigley shareholder approval and is expected to close in the next six to 12 months, Bill Wrigley said.