Mars’ Wrigley purchase should reshape the candy industry

April 28, 2008
Blockbuster $23 billion offer comes with help from Warren Buffett.

Mars Inc. on April 28 announced an agreement to acquire Wm. Wrigley Jr. Co. for approximately $23 billion $1 billion more than Mars total worldwide sales and a 28 percent premium over Wrigley’s stock price. About $2.1 billion of financial backing would come from Warren Buffett's Berkshire Hathaway Inc.

The purchase should reshape the candy industry, as well as privately held Mars, McLean, Va., which has been nearly entirely reliant on bar candy and almost entirely on chocolate.

The deal, which already had been approved by Chicago-based Wrigley’s board of directors, involves Mars offering Wrigley stock holders $80 a share. Despite the shaky state of the investment banking community, Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. also are providing financial backing. Berkshire Hathaway will get a small ownership stake in Mars following the transaction.

The transaction is fully underwritten and not subject to financing conditions,” said a Mars statement, which also noted the combined company would have a strong foundation of established brands in six core growth categories: chocolate, non-chocolate confectionery, gum, food, drinks and pet care.

Just as China and India have been in focus recently for putting a squeeze on world grain markets, those countries played a role in this acquisition, according to several analysts. Growing incomes and changing food consumption patterns are increasing sales of confectionery there. While Wrigley has struggled a bit in the U.S. market, overseas sales, particularly in those two countries, have been growing. Only one-third of Wrigley’s sales are from North America.

William Wrigley Jr., executive chairman, wrote in the company's 2007 annual report: In less-developed countries, which collectively account for three-quarters of the world’s population, income is on the rise in many areas. This translates to significant growth potential in demand for confections in these marketplaces, including Asia (where Chinese consumers alone spent more than $6 billion on confectionery in 2006) and Eastern Europe (where local consumers spent $12 billion) geographies where Wrigley already enjoys a substantial presence.”

Mr. Wrigley also claimed gum is the fastest growing confectionery sector. Over the past five years, the gum category has grown an average of 4 percent annually in volume and 8 percent in sales. And we have performed even better than that, he wrote.

Wrigley President/CEO William Perez added: “Wrigley is China’s largest confectionery company. With our early commitment to this geography, we have built greater retail distribution than any other consumer product company. The leading gum brand in China, Wrigley’s Doublemint, continues to resonate with consumers and expand consumption with new flavors and packaging innovations. Our revenue in China continued to grow dramatically and by [last year] expanding our production plant in Shanghai, we further strengthened the economics of our business there.”

Mars, of course, is no slouch on the international scene either. Food Processing’s 2007 Processor of the Year derives 60 percent of its sales outside of “the Americas.”

Mars officials said they will maintain a Wrigley headquarters in Chicago and will transfer Mars’ non-chocolate confectionery brands, including Starburst and Skittles, to Wrigley. William Wrigley Jr. will remain executive chairman of Wrigley, reporting to Mars Global President Paul Michaels, who also will oversee Perez.

Wrigley reported $632 million in 2007 net earnings in 2007 on sales of nearly $5.4 billion. It diversified itself out of gums a bit with the 2005 acquisition of Altoids and LifeSavers from Kraft for $1.5 billion. And it’s been widely reported that Wrigley had a 2002 agreement to buy Hershey Co. for $12.5 billion, but the deal fell through at the last moment.

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