Sweet deal for chewing gum icon Wrigley
CHICAGO–M&M’s candy maker Mars Inc. has teamed with billionaire Warren Buffett to buy chewing gum manufacturer Wm. Wrigley Jr. Co. for $23 billion (U.S.), creating the world’s largest confectionery company.
The deal, announced yesterday, will give Buffett’s Berkshire Hathaway Inc. a stake of more than 10 per cent in Wrigley, which will become a separate Mars subsidiary. Buffett’s other food holdings include a stake in Kraft Foods Inc.
The deal could force Mars’s rival Hershey Co. and Britain’s Cadbury Schweppes PLC into a deal of their own. The two companies are reported to have held talks in the past.
Aside from Berkshire money, financing for the Wrigley deal is being provided by Goldman Sachs Group and JPMorgan Chase & Co., Mars said in a news release.
At $80 a share, the deal represents a 28 per cent premium over Wrigley’s closing stock price of $62.45 on Friday. Wrigley shares jumped 23 per cent on the New York Stock Exchange, and U.S. stocks edged higher on optimism about the deal.
While Wrigley, which began as a soap maker, said it was not seeking a takeover, the price was likely too high to ignore, Edward Jones analyst Matt Arnold said.
"I have a hard time explaining it any other way, really," Arnold said cashadvance. "There was no outstanding reason for them to sell it today except for the price."
Wrigley already traded at 23 times estimated 2009 earnings, the second-highest multiple in the Standard & Poor’s U.S. packaged foods index.
The combined companies would have a major presence in the global chocolate, gum and candy businesses.
"If you combine these two, really, it creates just a true confectionery powerhouse with global scale and a strong presence in emerging markets," Morningstar analyst Mitch Corwin said.
The deal helps Mars expand its business into places where Wrigley has been strong, including Eastern Europe, while Wrigley has been making efforts in recent years to expand outside its core chewing gum business, said Irina Kazanchuk, an analyst at Euromonitor International.
While Wrigley is a leader in chewing gum it has faced increasing competition from Cadbury’s gum business, which includes Dentyne and Trident.