Opening Shots: 'Mastering' the deal
June 20, 2008
I certainly didn’t expect it. And I would venture that most confectionery professionals, unless they had an inside track within Mars Snackfood’s executive sanctum, knew that the Hackettstown, N.J.-based candy concern was going to purchase Wm. Wrigley Jr. Co.
Observers way smarter than this fellow have been applauding the deal, noting that the merger provides both companies with access to new markets and expanded distribution.
No less a sage than the Oracle of Omaha, the famed financer Warren Buffet, not only blessed the deal, he helped broker it with a tidy $4.4 billion line of credit.
Buffet, who’s know for appreciating and investing in companies that he can understand, ones that have strong brands and straightforward business models, acknowledged that he’s been “a big fan of Wrigley’s business model for many years, and I love their products.”
Seems the man loves confectionery products, having hustled Wrigley gum products as a young lad and then – through Berkshire Hathaway Inc. – purchasing See’s Candies in 1972. Seems he also knows a good deal, given his stature as one of the wealthiest men in the world.
In helping create the largest confectionery company in the world, Buffet provides affirmation that well-run companies, even if they’re in the business of simply selling sweets to the world, are good bets.
It will be interesting to see what this blockbuster deal does to former confectionery kingpin Cadbury Schweppes, as well as rivals Nestlé and Hershey. Financial and industry analysts are speculating that Cadbury, which will spin off its beverage subsidiary this month, most likely will renew its bid for Hershey now that there’s a new sugar sheriff in town.
And while size does matter in the world of multinationals, I suspect synergy remains the most important factor when considering an acquisition or merger. Where it not for the Hershey Trust, Wrigley and/or Cadbury would have been larger companies by now.
And even though I argued strongly against Hershey being sold several years ago, I – as well as some of the staunchest supporters of Hershey independence – are mulling that issue over again.
A Cadbury/Hershey deal offers the kind of synergies that each company wants: Cadbury gains access to the U.S. market, Hershey to a global presence. Others speculate that Nestlé may be in the market for Cadbury while some suspect that Kraft might be interested in expanding its portfolio of confectionery products.
Does such consolidation bode well for the industry? Aside from being inevitable, I’m inclined to think that these deals establish opportunities for both large and small operators within the industry.
First, there’s a renewed interest in our sweet travails from all sectors of the business world. This is healthy because it brings in fresh ideas and new blood into the industry. Moreover, as I’m finding out in with my discussions with manufacturers, artisans and suppliers, there’s plenty to learn from outside our Willy Wonka wonderland that’s applicable within.
In addition, the creation of larger multinationals – while seemingly overwhelming to midsized and smaller concerns – can create “pockets of prosperity” for operators who can service these companies and/or satisfy consumers with specialty items.
Oh, one last thought on this mega-deal. I understand that Paul Michaels, global president of Mars, Inc. and Bill Wrigley Jr., chairman of Wm. Wrigley Jr. Co., essentially consummated the deal while eating lunch in Michaels’ home one fine Saturday afternoon. Given my predilection for food, I’m curious what was served. Heck of a power lunch menu.