By James Quinn, Wall Street Correspondent
Consumer goods group Mars has agreed a deal to buy chewing gum giant Wrigley for $23bn (£11.5bn).
The deal, which is backed by billionaire investor Warren Buffett, will change the shape of the global confectionery market and could trigger the re-opening of merger talks between Cadbury and Hersheys.
Wrigely’s shareholders are being offered $80-a-share, a 28.1pc premium to its $62.45-a-share closing price on Friday night under a deal that has been recommended by the boards of both Mars and Wrigley.
Shares in Wrigley traded up $14.54 at $76.99, implying that investors believe the premium being paid by Mars is enough to gain control. Mr Buffett’s Berkshire Hathaway will purchase a $2.1bn (£1bn) equity stake in the combined confectionery business at an as yet undisclosed discount to the price being paid to Wrigley investors, with further backing coming from investment banks Goldman Sachs and JP Morgan.
Berkshire Hathaway is also providing $4.4bn of sub-ordinated debt to Mars in order to fund the deal.
“Both companies have great brands,” said Mr Buffett. “There’s really nothing that can go wrong with something like the Wrigley and Mars brands.”
As a result of the deal, Wrigley will become a stand-alone subsidiary of Mars, and will take control of all Mars’ non-chocolate confectionery brands such as Starburst and Skittles.
Bill Wrigley Junior will remain executive chairman of Wrigley, and will report to Paul Michaels, who is Mars’ global president.
Mr Michaels said the transaction with Wrigley would create a shared commitment “to innovation, quality and best-in-class global brands.” He also stressed that Wrigley’s business will remain in Chicago – its home for over a century – highlighting its importance to the Mid-West city.
However, the deal, which both companies believe will take 12 months to complete, is likely to face severe regulatory scrutiny in both the US and beyond, even though the combined company will still only control 14.1pc of confectionery sales worldwide.
In the US, it will face staunch tests by federal regulators, as well as scrutiny from the Congress and the Senate, while in Europe, the European Union is almost certainly set to weigh in with its views.
The deal will increase Mars’ reach yet further, providing real access to the lucrative chewing gum market, in which Wrigley’s sell its products in more than 150 countries worldwide. Analysts now predict Cadbury is likely to re-open previously stalled merger talks with US chocolate manufacturer Hershey
“Cadbury will have to look at its options and the most obvious is to re-open talks with Hershey over a merger,” said Investec Securities analyst Martin Deboo.
The pair have held talks in the past but have failed to reach agreement as the Hershey Trust, a charitable concern which controls 78pc of Hershey’s voting shares, has always said it does not want to dilute its control over the business.
A deal between the pair would make sense, because Cadbury lacks any form of strong presence in the US, while Hershey does not have the global reach which Cadbury is known for. The combination of Mars and Wrigley will create a business with more than $27bn of annual sales, dwarfing both Cadbury with annual sales of £5.2bn ($10.4bn) and Hershey, a relative minnow with just $4.9bn.Visit Share Investor Blog