Mars-Wrigley Combo: Better or Just Bigger?

Analysts Say Result Will Be Lean Player in Industry Ripe for Consolidation

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CHICAGO ( -- What could the candy titan resulting from the $23 billion merger of Wm. Wrigley Jr. Co. and Mars bring the world? Chocolate gum.

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A glance at Mars and Wrigley's brands and how they might work together under the same roof.

That was one reporter's joking suggestion at a press conference announcing the combination that will create the planet's largest confectionary company. Wrigley CEO Bill Perez chuckled but did not rule it out.

Mr. Perez, who will stay on after the merger, said Mars' nonchocolate brands will benefit from his company's expertise in gums and mints, including the Altoids and LifeSavers brands brought from Kraft in 2005. He also said the cross-pollination of ideas ought to result in some more innovative products. The broader portfolio, he said, will provide "increased leverage" in the marketplace.

There are other benefits, of course, such as greater clout in distribution, raw-materials pricing and media negotiation, among other areas, but both giants already have plenty of that. And there also will be lots of redundancies.

So the question then becomes whether bigger is indeed better or merely inevitable.

Still competitive?
Wachovia analyst Jonathan Feeney said if the merger is approved, the two strong marketers may be stronger as one entity. "Mars-Wrigley would make a more adept competitor, in our view, but two competitors just became one, and, importantly, both have a record of competing rationally via advertising and innovation," he wrote. "So we believe the competitive landscape for confectionery will remain attractive."

Credit Suisse analyst Robert Moskow wrote that at first blush, he found it difficult to believe that Executive Chairman Bill Wrigley Jr. would lose control of a business that's been run by his family for more than a century. "But things are changing quickly in the confectionery industry," Mr. Moskow wrote. "The industry is ripe for global consolidation now that Cadbury has announced the spinoff of its beverage business."

Mr. Moskow went on to speculate about possible combinations of Cadbury and Hershey or even Kraft Foods and Hershey. Kraft CEO Irene Rosenfeld was peppered with questions about a possible Hershey acquisition in her company's earnings call last week. She maintained, while leaving the door ajar, that a confectionary acquisition likely would be smaller and international. Ms. Rosenfeld has expressed interest in acquisitions that might boost her company's European chocolate business. Kraft's chocolate brands include Toblerone and Milka.

What's not expected to change dramatically when it comes to a Mars-Wrigley combination is marketing. "Warren Buffett invests in businesses that are already superb marketers, and when he has control, he pretty much leaves them alone," said Lowell C. Wallace, managing partner at Marketing Valuation Partners, a Chicago-based marketing firm. "I expect the same thing will happen here."

Mars and Wrigley laid out a combined $546 million in measured media last year. The bulk of the companies' creative is handled by Omnicom Group brands DDB Worldwide and BBDO Worldwide. The latter's relationship with the gum marketer is so long and solid that the agency's offices are located in the Wrigley Building, an architectural landmark on the Chicago River.
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