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Mars and Buffett to Buy Wrigley for $23 billion

By Reuters -  |  Posted 2008-04-28 Print this article Print

The candy industry just got a little sweeter, and smaller, with the buyout of Wrigley by Mars and Berksire Hathaway's Warren Buffett.

CHICAGO (Reuters) - M&M's candy maker Mars Inc has teamed up with billionaire Warren Buffett to buy No. 1 chewing gum manufacturer Wm Wrigley Jr Co (WWY.N: Quote, Profile, Research) for $23 billion, creating the world's largest confectionery company.

The deal could force Mars rival Hershey Co (HSY.N: Quote, Profile, Research) and Britain's Cadbury Schweppes Plc (CBRY.L: Quote, Profile, Research) into a deal of their own. The two companies are reported to have talked in the past.

The Wrigley deal, announced on Monday, will give Buffett's Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research) a minority stake in Wrigley, which will become a separate Mars subsidiary. Buffett's other food holdings include a stake in Kraft Foods Inc (KFT.N: Quote, Profile, Research).

Aside from Berkshire, financing for the deal is being provided by Goldman Sachs Group (GS.N: Quote, Profile, Research) and JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), 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.

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