Mars Inc has teamed up with billionaire Warren Buffett to buy Wm Wrigley Jr Co, the world's largest chewing gum maker, for $23 billion, creating the world's largest confectionary company.
At $80 a share, the deal, announced on Monday, represents a 28 percent premium over Wrigley's closing stock price of $62.45 on Friday.
The deal will give Mr. Buffett's Berkshire Hathaway investment vehicle an undisclosed minority stake in Wrigley, which will become a separate Mars subsidiary.
Scale and breadth
The transaction is aimed at diversifying Mars’ position in the global confectionery business. A deal would expand the McLean, Virginia company's already considerable global reach as Wrigley generates a majority of its sales outside of the U.S.
According to Bernstein Research, the merged company would have around 14.4 percent of the global confectionery market.
"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.
Wrigley sale
News of the deal surprised many bankers in the sector, who did not expect Wrigley – which is controlled by the Wrigley family – to agree to a sale.
It will also be a blow to Cadbury Schweppes, which has a global market share of ten percent.
Julian Hardwick, analyst at ABN Amro, said: “Clearly from a competitive perspective, this has got to be a negative (for Cadbury).”
News of the agreement between Mars and Wrigley helped Cadbury’s shares gain 19½p or 3.5 percent in London to 583p on hopes it may become a takeover target.
Wrigley shares jumped $13.55 or more than 20 percent to $77 before the bell on Monday.
April 28, 2008