Mars and Buffett to Buy Wrigley for $23 billion

CHICAGO (Reuters)- M&M’s candy maker Mars Inc has teamed up with billionaire WarrenBuffett 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 Marssubsidiary. Buffett’s other food holdings include a stake in KraftFoods 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 overWrigley’s closing stock price of $62.45 on Friday. Wrigley shares rose23 percent on Monday.

"The combined entity would have significant scale and breadth in avery attractive segment of the global food industry," Andrew Wood,analyst at Sanford Bernstein, said in a research note ahead of theformal 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 trueconfectionery powerhouse with global scale and a strong presence inemerging markers," Morningstar analyst Mitch Corwin said.

The price also was attractive to a company that already traded at 23times estimated 2009 earnings, the second-highest multiple in theStandard & 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 increasingcompetition from Cadbury’s gum business, which includes the Dentyne andTrident brands.

Despite speculation about a deal between Cadbury, currently No. 1 inthe confectionery industry, and Hershey, the Hershey Trust, whichcontrols about 78 percent of Hershey’s voting shares, has saidPennsylvania law requires it to maintain control of Hershey.

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

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

While publicly traded, a large portion of Wrigley’s shares arecontrolled by the Wrigley family, a Chicago presence whose name is onthe Chicago Cubs baseball stadium and a well-known Michigan Avenuelandmark building.