Mars and Wrigley stick together
June 20, 2008
Family-owned Mars Inc. and Chicago-based Wm. Wrigley Jr. Co. have signed an agreement to merge companies. The deal, in which Mars purchased Wrigley for nearly $23 billion, will make Mars number one in chocolate and chewing gum as well as the world’s largest confectioner. And it’s no wonder why Mars wanted to purchase Wrigley in the first place. Last year, Wrigley delivered a 17% increase in quarterly earnings per share along with a record first quarter sales number. But Mars isn’t the only one benefitting from the merger.
Because of the change from public to private, Wrigley stockholders will receive $80 for each share, a 28% premium to Wrigley’s closing price of $62.45.
“This also represents 4.3 times Wrigley’s 2007 net sales and over 35 times Wrigley’s 2007 earnings per share,” said Bill Wrigley Jr., executive chairman and chairman of the board for the Wrigley Co. “We’re confident that the agreement represents a win-win-win for our stockholders, the company and our associates.”
Although Mars gets the title of “world’s largest confectioner,” the Wrigley Co. gets to expand its chocolate portfolio by including Mars’ non-chocolate candy brands, such as Skittles and Starburst. Wrigley also gets to keep its headquarters in Chicago while becoming a stand-alone subsidiary of Mars.
“When this transaction is completed, we will be proud to welcome Wrigley’s associates to our company,” said Paul Michaels, global president of Mars, Inc. “The strong cultural heritage of two legendary American companies with a shared commitment to innovation, quality and best-in-class global brands provides a great basis for this combination. We are looking forward to continuing on our path of growth by jointly developing those values even further.”
The acquisition has presented other companies with some tough competition. The joining of Mars and Wrigley would force Cadbury Schweppes PLC to be the second largest confectioner in the world. In order to fight back, analysts expect Cadbury to resume talks with Hershey about a possible merger. Analysts also say that Nestle is not out of the game yet. Nestle has enough money and control of the market to purchase Cadbury. In the meantime, Cadbury shares have risen 2.8% with the hopes of a merger.
Goldman Sachs, JPMorgan and famous financier Warren Buffett of Berkshire Hathaway are financing the Mars-Wrigley acquisition. Berkshire Hathaway will hold a minority equity interest in the Wrigley Company subsidiary. Wrigley stockholders will have a chance to vote on the merger at a meeting held later this year. The deal is expected to close in the next six to 12 months.
“Of course this represents a significant change for us, but as we assessed this opportunity, I thought a lot about something I’ve said to our associates over the years: We must respect the past, but at all times do what is right for the future,” said Wrigley Jr.