April 29, 2008
Mars and Wrigley in Big Candy Deal
Two of the great family-run brands in the confectionary business are soon to become one (assuming regulatory approval) and the question is what will that mean for competitors in the candy and gum categories as well as the retail companies that sell their products.
Mars, it was announced yesterday, will acquire the Wm. Wrigley Jr. Co. for roughly $23 billion with some funding assistance from Warren Buffett’s Bershire Hathaway and Goldman Sachs. Mr. Buffett will become a stakeholder in the merged companies with a 2.1 billion contribution to the deal.
“Those of you who know me, know that I have been a big fan of Wrigley’s business model for many years, and I love their products,” said Mr. Buffett. “When you think of a business that’s easy to understand, with favorable long-term economics, and able and trustworthy management — you think of Wrigley. Bringing together these iconic, world-class companies combines Wrigley’s strengths with the deep resources and proven brand-building savvy of Mars and will result in a powerful force for innovation and growth in the global confectionery marketplace.”
Wrigley, which is primarily known as a gum company, has expanded into candies in recent years with the purchase of Altoids and LifeSavers from Kraft Foods.
Mars, primarily known for its candy brands, also operates in other food categories including pet food, rice and coffee.
In announcing the deal, Mars Global president Paul Michaels, said, “This is not about being bigger — it’s about being the best, and providing leadership and innovation across the full range of confectionery categories.”
According to a report on the Ad Age website, Wrigley will take control over Mars’s non-chocolate candy business.
Wrigley’s executive chairman, Bill Wrigley Jr., said having the “the opportunity to put great brands like Orbit, M&Ms, Skittles, LifeSavers and Snickers under the same umbrella” will provide the company with additional opportunities to leverage revenue growth opportunities.
Bill Perez, Wrigley CEO who plans to stay on when the deal is complete, said his company’s “high level of expertise” in merchandising and marketing candy in the non-chocolate segment will give the new organization “increased leverage” in the marketplace.
That new clout is likely to spur further consolidation in the industry, according to many.
“Hershey, Cadbury [Schweppes] and Nestle are all going to have to figure out what they’re going to do,” Mr. Wrigley told AdAge.com. “I would anticipate more consolidation in the future.”
Credit Suisse analyst Robert Moskow is also looking for more deals to come. “The Mars-Berkshire alliance is not the end of the potential combinations here,” Mr. Moskow wrote in a report to investors. “Other alliances may form, perhaps with Nestle or Kraft. We think there is more excitement to come.”
Discussion Questions: What will the Mars/Wrigley merger mean for the two companies, their competitors and the retailers they do business with? Will the new company’s “increased leverage,” for example, give it more ability to influence the configuration of checkout areas in grocery, drug, convenience and mass merchandiser stores?
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The goal of most candy companies (Cadbury, Nestle): dominant market share, as close to a monopoly as the government will allow. Hershey’s goal: keep from being taken over. The candy business is having a “best of times/worst of times” moment: ingredient costs are rising sharply, yet investors crave low-risk consumer nondurable stocks during times of economic peril. Wrigley and Mars are both jewels: 2 of the best-run companies in America. (And Nestle is one of the best run companies in the world.) Great mergers come from strong participants.
Merging the culture of two companies is never easy. The stated intention is to become the best. Determining which parts of which culture (or which culture) provides the path to become the best and then incorporating the necessary changes to make that happen will be a challenge. If done well, the opportunity is there for great success.
The combination of Wrigley and Mars holds the potential to be a blockbuster at retail. If they can execute to expectation, they have the potential to dominate the candy and checkout areas of retailers. This could be trouble for the other candy companies, forcing more consolidation.
However, as Camille points out, consolidating corporate cultures is never easy. And Mars’ culture is somewhat idiosyncratic.
It will be interesting to see how this plays out.
These are both well run companies. It’s refreshing to see two successful companies merge rather than some of the other merger situations: two weak companies or one successful with one weak. One of the main advantages here will be that they are both privately held and not subject to the whims of Wall Street analysts.
Consumers of candy and gum are among the most brand loyal of all spenders. If one has a taste for Juicy Fruit, some M&Ms, a KitKat, or a Hershey Bar, pretty much nothing else will suffice! The principals of this deal and their confectionery competitors may be looking thither and yon for manufacturing synergy and administrative and distribution savings, but they had better not mess too much with the products or their ingredients.
A great marriage! And just like any marriage the success will be in communication, respecting each for their strengths and checking the ego at the door. Hopefully, these two great companies will merge to a greater, better commodity.
Hershey has been struggling and will need to play catch up fast.
Although this merger will allow each company to control the brands which their strengths are built upon, it doesn’t portend to give an enhanced presence at retail, nor leverage efficiencies to deliver a greater return for an investor’s dollar. Just because these are 2 large organizations, we still have to be cautious about the impact of the merger on each corporation’s resources, operating procedures and structure.
This will not increase either one’s presence at the checkstand (since it has no impact on consumer takeaway or sales), and may actually have a negative impact, if either side of the business is not kept up to speed with the other.
I can’t resist the temptation for puns.
It is not the goal of this new venture to dominate the shelf of the Americas, Europe, Asia etc. Quite frankly it is more than a global strategy. It is a universal strategy where someday, wherever people congregate will be found Eclipse, Orbit, Mars, and Milky Way. Who would ever believe it?
As these are already well run companies, joining forces can only create more growth and opportunities for these megabrands. It will be interesting to see if any other console opportunities spring up because of this merger. Kraft/Nestle? Could they possibly own any more shelf space?
This acquisition will give Mars something to chew on … and also add muscle to their product assortments. Buffet loves to chew gum as well as chew up competition. Hershey had better find additional ways to preserve their shelf space. Perhaps a roll with Tootsie Roll will suffice.
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The goal of most candy companies (Cadbury, Nestle): dominant market share, as close to a monopoly as the government will allow. Hershey’s goal: keep from being taken over. The candy business is having a “best of times/worst of times” moment: ingredient costs are rising sharply, yet investors crave low-risk consumer nondurable stocks during times of economic peril. Wrigley and Mars are both jewels: 2 of the best-run companies in America. (And Nestle is one of the best run companies in the world.) Great mergers come from strong participants.
Merging the culture of two companies is never easy. The stated intention is to become the best. Determining which parts of which culture (or which culture) provides the path to become the best and then incorporating the necessary changes to make that happen will be a challenge. If done well, the opportunity is there for great success.
The combination of Wrigley and Mars holds the potential to be a blockbuster at retail. If they can execute to expectation, they have the potential to dominate the candy and checkout areas of retailers. This could be trouble for the other candy companies, forcing more consolidation.
However, as Camille points out, consolidating corporate cultures is never easy. And Mars’ culture is somewhat idiosyncratic.
It will be interesting to see how this plays out.
These are both well run companies. It’s refreshing to see two successful companies merge rather than some of the other merger situations: two weak companies or one successful with one weak. One of the main advantages here will be that they are both privately held and not subject to the whims of Wall Street analysts.
Consumers of candy and gum are among the most brand loyal of all spenders. If one has a taste for Juicy Fruit, some M&Ms, a KitKat, or a Hershey Bar, pretty much nothing else will suffice! The principals of this deal and their confectionery competitors may be looking thither and yon for manufacturing synergy and administrative and distribution savings, but they had better not mess too much with the products or their ingredients.
A great marriage! And just like any marriage the success will be in communication, respecting each for their strengths and checking the ego at the door. Hopefully, these two great companies will merge to a greater, better commodity.
Hershey has been struggling and will need to play catch up fast.
Although this merger will allow each company to control the brands which their strengths are built upon, it doesn’t portend to give an enhanced presence at retail, nor leverage efficiencies to deliver a greater return for an investor’s dollar. Just because these are 2 large organizations, we still have to be cautious about the impact of the merger on each corporation’s resources, operating procedures and structure.
This will not increase either one’s presence at the checkstand (since it has no impact on consumer takeaway or sales), and may actually have a negative impact, if either side of the business is not kept up to speed with the other.
I can’t resist the temptation for puns.
It is not the goal of this new venture to dominate the shelf of the Americas, Europe, Asia etc. Quite frankly it is more than a global strategy. It is a universal strategy where someday, wherever people congregate will be found Eclipse, Orbit, Mars, and Milky Way. Who would ever believe it?
As these are already well run companies, joining forces can only create more growth and opportunities for these megabrands. It will be interesting to see if any other console opportunities spring up because of this merger. Kraft/Nestle? Could they possibly own any more shelf space?
This acquisition will give Mars something to chew on … and also add muscle to their product assortments. Buffet loves to chew gum as well as chew up competition. Hershey had better find additional ways to preserve their shelf space. Perhaps a roll with Tootsie Roll will suffice.