Mars, Wrigley Meld $23-Billion Merger

Mars Inc., of McLean, Va., announced a merger agreement with Chicago-based Wm. Wrigley Jr. Company, a transaction that could ultimately be valued at $23 billion, the companies said.

The agreement will make Wrigley, a $5.4 billion gum and confections company, a separate, stand-alone subsidiary of Mars.

The agreement has been unanimously approved by both companies’ board of directors. The merger establishes the companies’ brands in six core categories: chocolate, non-chocolate confectionery, gum, food, drinks and petcare. Among the product brands are M&M’s, Snickers, Dove, Mars, Orbit, Extra, Doublemint, Uncle Ben’s, Pedigree, Whiskas, Royal Canin and Banfield.

"When this transaction is completed, we will be proud to welcome Wrigley’s associates to our company," said Paul S. 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.”

The combination allows Wrigley, founded in Chicago in 1891, to retain its existence as a stand-alone business while still being part of Mars.

"We understand how important Wrigley’s presence has been for Chicago over the past century and have committed to maintain its headquarters and operations in the city,” Michaels said. “Mars has a long history of involvement in the greater Chicago economy and community, and we look forward to strengthening these ties by maintaining Wrigley’s heritage there."

Mars operates three plants in Illinois. To provide more focus to Mars’ brands and drive growth, the company will be transferring its global non-chocolate confectionery sugar brands, including Starburst and Skittles, to Wrigley, the companies said.

Founded in 1911, Mars operates in more than 66 countries, employs more than 48,000 associates worldwide and has annual global sales of $22 billion. Wrigley has global sales of $5.4 billion.

Bloomberg news reported the Mars-Wrigley merger could force U.S. chocolate makers Cadbury Schweppes and The Hershey Co. into an agreement. A Hershey-Cadbury merger would create a company with 15.6% of the world’s candy market, well above the 14.1% Mars and Wrigley’s hold as a result of their merger.

Hershey has lost market share to Mars in the past two years, and is confronting rising costs for cocoa, energy and milk, Bloomberg reported. Hershey reported first-quarter profit dropped 32% last week, while Cadbury reported declining earnings since the second half of 2006.

“It could prompt them to come back to the table again and revisit the potential,” said Matt Arnold, an analyst with Edward Jones & Co. in St. Louis, who advises investors to buy Hershey shares. The combination of Wrigley and Mars “is a much stronger competitive threat long term to Hershey.”

The Mars-Wrigley combination will create $27 billion in annual sales (including pet food), compared to Hershey’s $4.9 billion in annual sales and Cadbury’s $15.9 billion. Mars and Wrigley together will control almost 28% of the U.S. candy market, eclipsing Hershey’s 24% share, according to 2006 sales trend reports from Euromonitor International Inc.

Other analysts suspect a Cadbury-Hershey’s merger is unlikely.

“Not only do we believe that it is extremely unlikely that Cadbury would make a successful bid for Hershey, but we do not see other potential suitors either,” said Alexia Howard, a Sanford Bernstein analyst who advised investors to sell.

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