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?