American food empire Mars has teamed up with the world’s richest man, Warren Buffett, to create a global leader in confectionery by swallowing the chewing gum manufacturer Wrigley in an agreed takeover worth $23-billion.
A combination of Mars and Wrigley will be the largest maker of sweets and chocolate in the world, leapfrogging Cadbury Schweppes and putting pressure on the British company to revive its own search for a merger partner.
Privately owned by a Virginia-based family that closely guards its privacy, Mars is snapping up Wrigley to take advantage of economies of scale in manufacturing and distributing vast quantities of snack food.
Advisers to the two companies say that by putting together research and innovation departments, they can improve their pipeline of new types of sweets, chocolates and gum to grab consumers’ attention and help weather the slowdown in high-street spending.
“The opportunity to put great brands like Orbit, M&M’s, Skittles and Lifesavers all under the same umbrella is just an unbeatable combination,” Wrigley chairperson Bill Wrigley told a press conference at the firm’s Chicago headquarters.
The $80-a-share cash offer was pitched at a 28% premium to the closing price of Wrigley’s shares on April 25 and was greeted by analysts as a generous bid.
A junior partner in the deal, Buffett will provide $6,5-billion to help Mars finance the deal through a mixture of loans and an equity investment, while investment bank Goldman Sachs will contribute $5,7-billion.
Although its shares have been publicly listed since 1923, Wrigley’s founding family has a controlling stake.
The firm has received assurances from Mars that Wrigley’s management will retain a high degree of autonomy and that the business will remain based in its distinctive triangular building on the Chicago river.
“We will continue to do what we do best while having access to, and taking full advantage of, the talent, expertise and innovation of Mars,” said Bill Wrigley.
Between them Mars and Wrigley employ 64Â 000 people and generate global sales of $27-billion annually.
Wrigley’s gum brands such as Juicy Fruit, Spearmint and Doublemint became global names during World War II when the company diverted its production line away from consumers to supply America’s armed forces.
But the US firm has come under assault in recent years from Cadbury, which has made inroads with its Trident gum.
Mars, meanwhile, is more diversified. In addition to snacks such as Milky Way, Snickers and Starburst, its sprawling holdings extend to Dolmio pasta sauces, Uncle Ben’s rice and Whiskas cat food.
The firm was founded by chocolate maker Frank Mars in 1911. His three surviving grandchildren — Forrest, John and Jacqueline — are each estimated by Forbes magazine to be worth $14-billion.
Behind-the-scenes negotiations to strike the deal have taken only three weeks, despite a difficult environment for financing large transactions as banks nurse losses from the global credit crunch.
“There’s no question financial markets are very challenging now,” said the Wrigley chairperson. “Coming up with the capital to make this deal happen was a challenge.”
Mars approached Buffett’s Berkshire Hathaway investment company for help in putting together the cash and the 77-year-old Nebraska-based billionaire was enthusiastic to get involved.
“I’ve been conducting a 70-year taste test on the products since I was about seven years old,” Buffett told CNBC television recently.
The insurance tycoon is renowned for snapping up relatively low-tech businesses with a long track record.
“There’s really nothing that can go wrong with something like the Wrigley or Mars brand,” said Buffett.
“It’s literally true that they’ve faced the test of time over decades and decades and decades. People use more and more of their products every day.” He said he preferred investing in simple propositions such as chewing gum rather than the kind of complex financial firms that have come unstuck on sub-prime mortgages. — Â