Wrigley, Mars Announce $23 Billion Merger

Goldman Sachs and Buffett's Berkshire Hathaway to Provide Funding

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CHICAGO (AdAge.com) -- The Wm. Wrigley Jr. Co. this morning announced it will merge with Mars, the maker of M&M's. The $23 billion deal, if approved, will create one of the world's largest confectionary companies. The combination could also become the springboard to a summer of love in the candy industry. Talk quickly turned to what the merger means for beleaguered Hershey.
Wrigley is known primarily as a gum company with such iconic brands as Juicy Fruit, Doublemint and Big Red.
Wrigley is known primarily as a gum company with such iconic brands as Juicy Fruit, Doublemint and Big Red.

Goldman Sachs and Warren Buffett's Berkshire Hathaway are providing funding for Mars. Mr. Buffett will become a stakeholder in Wrigley, but the company declined to disclose what his interest will be. The combined company is expected to generate about $27 billion in annual sales.

"We have a lot of exciting days at the Wrigley company, but I don't know if we're ever going to be able to top this one," Executive Chairman Bill Wrigley Jr. said at a press conference this morning.

Brand builders
Mars President Paul S. Michaels in a statement said the storied, family-run companies share common values and ways of doing business, "including an emphasis on ethics and respect for people, focus on generational growth, and expertise in obtaining consumer insights and building enduring brands."

Mr. Wrigley said he was first approached by Mars on April 11, and that there had been "much back and forth." He will stay on as executive chairman of Wrigley, which will be a Chicago-based, stand-alone subsidiary following the merger.

Mars will pay $80 cash for each share of Wrigley, with plans to take the company private. The price represents a 28% to 34% premium over Wrigley's closing share price on Friday. Wachovia analyst Jonathan Feeney said in a report that the deal confirms the value of a global gum business, as well as Wrigley's high share price.

Although known primarily as a gum company, with such iconic brands as Juicy Fruit, Doublemint and Big Red, Wrigley purchased Altoids and LifeSavers from Kraft in 2005. Other gum brands include Hubba Bubba, Eclipse, Extra, Orbit and Winterfresh. In addition to M&M's, Mars is the maker of Skittles and Snickers, as well as Uncle Ben's rice and Pedigree pet food.

Non-chocolate businesses
Wrigley will take over Mars' non-chocolate businesses, including Starburst and Skittles. Mr. Wrigley said that "the opportunity to put great brands like Orbit, M&Ms, Skittles, LifeSavers and Snickers under the same umbrella" will lead to enhanced sales and marketing opportunities.

"Bringing together these iconic, world-class companies combines Wrigley's strengths with the deep resources and proven brand-building savvy of Mars and will result in a powerful force for innovation and growth in the global confectionery marketplace," Mr. Buffett said in the joint press release.

Wrigley CEO Bill Perez, who will also stay on, declined to cite specific marketing plans, but said his company has a "high level of expertise" in merchandising and marketing non-chocolate candy. He added that the broader portfolio will provide "increased leverage" in the marketplace. Mr. Perez also said that shared knowledge and expertise should also result in more innovative new products.

Wrigley's agencies are Omnicom Group's BBDO and DDB, both Chicago. The company spent $169 million in measured media in 2007, according to TNS Media Intelligence. Mars' agencies include BBDO in New York and TBWA/Chiat/Day, New York and Los Angeles. Mars spent $377 million in advertising last year, according to TNS. The combination is expected to be beneficial for the companies' marketing operations.

Increased marketing investment predicted
Sanford C. Bernstein analyst Andrew Wood predicted that synergies between the two companies' businesses "could provide significant ammunition for increased investment behind promotional and marketing activity to enhance competitive pressures."

News of the union, however, led to much speculation about what other deals may be in the offing.

"Hershey, Cadbury [Schweppes] and Nestle are all going to have to figure out what they're going to do," Mr. Wrigley said. "I would anticipate more consolidation in the future."

Credit Suisse analyst Robert Moskow said the confectionary industry is changing quickly and that the industry is "ripe for consolidation."

"If Cadbury and Hershey ever consummate the marriage that they reportedly entertained a year ago, then it would make sense for Wrigley and Mars to respond with a merger of their own," Mr. Moskow wrote in a report. "One thing we definitely know about [Mr. Wrigley] is that he is very eager to extend Wrigley's reach beyond chewing gum and into the broader confectionery arena."

Wrigley bid to buy Hershey back in 2002, but the deal fell apart in the final stages.

"The Mars-Berkshire alliance is not the end of the potential combinations here," Mr. Moskow wrote. "Other alliances may form, perhaps with Nestle or Kraft. We think there is more excitement to come."

Wrigley also announced impressive earnings, up 17% from the year-ago period, but the news was almost entirely drowned out by the merger. First-quarter sales were also up 16% from last year.
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