Mars, Buffett buying Wrigley for $23 billion

By Brad Dorfman

CHICAGO (Reuters) - M&M's candy maker Mars Inc has teamed up with billionaire Warren Buffett to buy the No. 1 chewing gum manufacturer Wm Wrigley Jr Co WWY.N for $23 billion, creating the world's largest confectionery company.

The deal, announced on Monday, will give Buffett's Berkshire Hathaway Inc (BRKa.N) a stake of more than 10 percent in Wrigley, which will become a separate Mars subsidiary. Buffett's other food holdings include a stake in Kraft Foods Inc (KFT.N).

The deal could force Mars rival Hershey Co (HSY.N) and Britain's Cadbury Schweppes Plc (CBRY.L) into a deal of their own as they will be faced by a competitor with a stronger geographic base and portfolio of products, analysts said. Cadbury and Hershey are reported to have held talks in the past.

Aside from Berkshire, financing for the Wrigley deal is being provided by Goldman Sachs Group (GS.N) and JPMorgan Chase & Co (JPM.N), Mars said in a press statement.

At $80 a share, the deal represents a 28 percent premium over Wrigley's closing stock price of $62.45 on Friday. Wrigley closed up 23 percent on the New York Stock Exchange on Monday.

While Wrigley said it was not seeking a takeover, the price was likely too high to ignore, Edward Jones analyst Matt Arnold said.

"I have a hard time explaining it any other way, really," Arnold said. "There was no outstanding reason for them to sell it today except for the price."

Wrigley already traded at 23 times estimated 2009 earnings, the second-highest multiple in the Standard & Poor's U.S. packaged foods index .15GSPFOOD.

The combined companies would have a major presence in the global chocolate, gum and candy businesses.

"If you combine these two, really, it creates just a true confectionery powerhouse with global scale and a strong presence in emerging markets," Morningstar analyst Mitch Corwin said.

The acquisition, an unusual move in the confectionery business for Mars, will help the company expand its business into places where Wrigley has been strong, including Eastern Europe, while Wrigley has been making efforts in recent years to expand outside its core chewing gum business, said Irina Kazanchuk, an analyst at Euromonitor International.

While Wrigley is the No. 1 gum maker in the world, it has faced increasing competition from Cadbury's gum business, which includes Dentyne and Trident.

Berkshire Hathaway, meanwhile, gets a stake that can help it expand its overseas exposure.

"Wrigley and Mars have dominant global franchises, and it's consistent with Berkshire's interest in having more exposure abroad, with streams of cash flow from both developing and emerging markets," said Thomas Russo, a partner at Gardner Russo & Gardner, which invests in Berkshire.

Asked if Buffett's funding was needed to make up a shortfall in the financing of the deal, Bill Wrigley said, "There's no question that financial markets are very challenging right now, and coming up with the capital basically to make this deal was a challenge.