Mars buying gum maker Wrigley

April 28, 2008 3:30:10 PM PDT
An icon of Chicago business is merging with one of the sweetest brands in America.The Wrigley Company is getting together with Mars Candies. And billionaire Warren Buffett is offering his help with the deal.

Its being touted as a sweet deal -- a win-win situation for the company, its shareholders and employees. On Monday morning, Wrigley Company executives announced the sale of Chicago's chewing gum maker and the birth of a candy company powerhouse.

"It's an exciting day for all of us," said Bill Wrigley Jr., Wrigley Company executive chairman and chairman of the board.

And it was a sweet one for the Wrigley Company as it announced a deal to merge with chocolate candy giant Mars. Under the agreement the world's largest chocolate seller will pay around $23 billion in cash for the iconic confectioner behind Juicy Fruit and Doublemint Gum. Wrigley officials say the acquisition is a winning situation for everyone that will not initially lead to any significant jobs cuts, and may even mean more company jobs in Chicago.

"Some of the brands that will come over from the Mars company, we might actually be adding some people to the Chicago base here, but the details of that have yet to be determined," said Wrigley.

Wrigley employs around 16,000 people worldwide ? 2,000 of those in Chicago and under the deal would remain a stand alone entity. The deal was hatched after Mars Candy Company approached Wrigley back in April about joining forces. Wrigley executives say the merger is not about the chewing gum company needing a bailout but good business.

"The fact that Mars approached the Wrigley Company is a testament to the fundamental health and growth potential of our company," said Bill Perez, Wrigley Company President & CEO.

The Wrigley Company has been synonymous with Chicago for decades. And while the name will stay on its Michigan Avenue headquarters, it's still unclear if that will be the case for the historic ballpark of the baseball team the Wrigley family once owned.

"We will just have to wait and see what transpires with that whole situation, with Sam Zell and the Tribune," said Wrigley.

Regardless of that outcome, industry experts say the merger has the potential to change the confectionary world and could even spark more company partnerships.

"It's not a bad thing for the industry. Wrigley needs more space to have its products. Mars needs more products to boost its line. It's a sharing of things," said Marcia Mogelonski, Mintel International.

Mega investor Warren Buffett helped finance the deal and will hold a minority equity interest in Wrigley once the deal is completed, which should be anywhere from six to 12 months. Shareholders were already seeing some benefit. Not only is the share buyout offer almost $20 more than where the stock closed Friday, Wrigley stock is on the rise.

The combined companies will have about 64,000 workers worldwide and about $27 billion in annual sales. And company officials say consumers should look for some new and interesting offers as a result of the partnership.

"A good time to buy a really great business is when you can do it," Warren Buffett said on CNBC Monday, adding that he understands Mars and Wrigley better than the balance sheets of most major banks.

Buffett's Berkshire Hathaway Inc. will purchase a $2.1 billion minority equity interest in the Wrigley subsidiary once the deal is completed. The Omaha, Neb.-based company also offered $4.4 billion of subordinated debt to fund the deal.

"In terms of Warren Buffett's sweet spot, these are exactly the kind of brands that he wants," said Jet Hollander, a former candy industry executive who is president of the snack food consulting firm Pre-Eminence Strategy Group.

If the buyout receives regulatory and shareholder approval, the combined companies would leapfrog over Britain's Cadbury Schweppes as the world's largest confection maker -- a move that's already fueling speculation that the buyout could spawn a round of candy industry consolidation.

"I look at it as two companies that see the opportunity to create a true global confectionary powerhouse," said Morningstar analyst Mitchell Corwin. "They become No. 1 in chocolate and No. 1 in chewing gum with a strong international presence and growth in emerging markets."

Under the agreement, shareholders at Chicago-based Wrigley would receive $80 in cash for each share. Mars will also assume less than $1 billion of Wrigley debt.

Executives said family owned Mars first began eyeing Wrigley in January and approached the company with their unsolicited bid in April 11. Since then, the two sides have haggled to reach the $80-per share offer -- a 28 percent premium to Wrigley's Friday closing price of $62.45.

Monday's announcement sent Wrigley's shares into overdrive, reaching an all-time high.

"I think this is a bold move, but beyond that, I think this is the right move," said Perez.

Wrigley would become a subsidiary of McLean, Va.-based Mars. Its headquarters will stay in Chicago, where the business has operated since it was founded by the Wrigley family in 1891. The Wrigley family will no longer hold any equity in the company.

"I have talked to some family members and I anticipate that they all will be very supportive of this, because it makes sense for really everybody," said Wrigley, the fourth-generation family member to lead the business. "It's not just about selling out for dollars. It is more about what is the right thing and how can we grow going forward."

The gum maker's ornate towering headquarters along the Chicago River is a favorite among tourists for snapping pictures.

Among the early changes after the deal is complete, Wrigley would take over control of Mars' non-chocolate candy, including Starburst and Skittles.

Officials said Wrigley's board, which unanimously approved the $80-per-share offer over the weekend, would examine any other offers submitted to the company.

But Citigroup analyst David Driscoll said he thought a competing offer would be unlikely.

"The only other likely buyer that we believe would benefit from acquiring Wrigley would be Hershey; but we view this as an unlikely outcome given the current situation," he told investors in a research note.

The Hershey Co. has struggled with flattening sales and rising commodity costs since late 2006 as it spends heavily to expand its overseas presence and cut back its work force in North America.

Meanwhile Monday, Wrigley said its first-quarter profit rose 18 percent, thanks to strong sales in Eastern Europe and Asia and a weakened U.S. dollar.

The company earned $168.6 million, or 61 cents per share during the January-through-March quarter. That's up from $142.7 million, or 52 cents, last year. Revenue climbed 16 percent to $1.45 billion last year. Analysts polled by Thomson Financial expected a profit of 55 cents per share on revenue of $1.39 billion.

Wrigley shares rose $14.51, or 23.2 percent, to $76.96 in afternoon trading.

The Associated Press contributed to this report.

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