Mars, Buffett to buy Wrigley for $23 billion

SAN FRANCISCO (MarketWatch) -- Mars Inc., backed by billionaire investor Warren Buffett's Berkshire Hathaway Inc., just reached its hand deeper into the candy jar.

Mars said Monday it will buy 117-year-old chewing gum pioneer Wm. Wrigley Jr. (WWY) for about $23 billion -- a deal promising to combine M&M's and Snickers with Juicy Fruit and Life Savers.

Mars, of McLean, Va., will pay $80 in cash for each share of Wrigley share, a 28% premium over Wrigley's Friday closing price of $62.45, closely held Mars said in a statement.

Chicago-based Wrigley, with annual sales of $5.4 billion, is known for its namesake Spearmint and Juicy Fruit gums as well as Life Savers. Mars is paying multiples of more than four times sales and 35 times Wrigley's 2007 earnings per share for those products and others, based on the deal price.

The deal will create a global candy giant with annual sales of $28 billion.

Wrigley will become a stand-alone, separate Mars subsidiary, in which Buffett's Berkshire Hathaway (BRK.A) will make a minority investment, Mars said.

Specifically, Berkshire Hathaway will make a $2.1 billion equity purchase in Wrigley. It will be bought at a discount to the share price being paid to the company's shareholders.

In a statement, Buffett said he has been "a big fan of Wrigley's business model for many years." His investment company has long owned San Francisco-based See's Candies.

In addition to Berkshire Hathaway, financing for the transaction is to be provided by Goldman Sachs and J.P. Morgan. The deal is expected to close in six to 12 months.

Wrigley's shares shot up 23% to $76.91, reaching unseen levels for the stock.

In its many decades as a publicly traded company, Wrigley's stock has never before approached the $80-a-share mark, adjusting for share splits.

The transaction is aimed at strengthening and diversifying Mars' position in the confectionery business worldwide. Mars ranks as the world's largest chocolate maker by sales, with market share of 15%. And its total annual sales are $22 billion, the company claims.

A deal would expand Mars' global reach, already considerable, because Wrigley generates 70% of its sales outside of the U.S. Its products also include Extra, Eclipse and Orbit gums.

Changing competitive landscape

Pending completion of the Wrigley deal, Mars will manufacture everything from chocolates to chewing gum, drinks and pet-care products. Some of its brands will include M&Ms, Snickers, Pedigree, Wrigley's chewing gum and Altoids breath mints.

Mars will move its Starburst and Skittles brands to Wrigley, which will fold those sugar products into its Life Savers and Altoids portfolio.

The transaction brings together the Mars family of Northern Virginia and Wrigley family of Chicago.

Bill Wrigley Jr. will remain executive chairman of Wrigley, reporting to Paul Michaels, global president of Mars. He will work closely with Bill Perez, Wrigley's president and chief executive, and the chewing-gum maker's current management team, Mars said.

In recent years, Wrigley has expanded its offerings far beyond chewing gum.

In 2005, the company bought from Kraft Foods Inc. (KFT) its candy assets, including Altoids and LifeSavers, for about $1.5 billion. Wrigley also recently purchased a Russian chocolate company.

The family-controlled company -- whose name is emblazoned on Chicago's Wrigley Building, which it owns, and Wrigley Field, which it does not -- was close to a deal to acquire Hershey in 2002 for about $12.5 billion, but talks fell apart at the 11th hour, The Wall Street Journal has reported.

Separately Monday, Wrigley's reported first-quarter net income rose 18% from a year ago to $168.6 million, while sales jumped 16% to $1.45 billion from the year-earlier quarter.