Mars and Warren Buffett join forces for $23bn takeover of Wrigley

Deal puts pressure on Cadbury to seek merger partner as British group loses top slot

American food empire Mars has teamed up with the world's richest man, Warren Buffett, to create a global leader in confectionery by swallowing the chewing gum manufacturer Wrigley in an agreed takeover worth $23bn (£11.6bn).

A combination of Mars and Wrigley will be the largest maker of sweets and chocolate in the world, leapfrogging Cadbury Schweppes and putting pressure on the British company to revive its own search for a merger partner.

Privately owned by a Virginia-based family which closely guards its privacy, Mars is snapping up Wrigley to take advantage of economies of scale in manufacturing and distributing vast quantities of snack food.

Advisers to the two companies say that by putting together research and innovation departments, they can improve their pipeline of new types of sweets, chocolates and gum to grab consumers' attention and help weather the slowdown in high-street spending.

"The opportunity to put great brands like Orbit, M&Ms, Skittles and Lifesavers all under the same umbrella is just an unbeatable combination," Wrigley chairman Bill Wrigley told a press conference at the firm's Chicago headquarters.

The $80-a-share cash offer was pitched at a 28% premium to the closing price of Wrigley's shares on Friday and was greeted by analysts as a generous bid.

A junior partner in the deal, Buffett will provide $6.5bn to help Mars finance the deal through a mixture of loans and an equity investment while investment bank Goldman Sachs will contribute $5.7bn.

Although its shares have been publicly listed since 1923, Wrigley's founding family has a controlling stake.

The firm has received assurances from Mars that Wrigley's management will retain a high degree of autonomy and that the business will remain based in its distinctive, triangular-shaped building on the Chicago river.

"We will continue to do what we do best while having access to, and taking full advantage of, the talent, expertise and innovation of Mars," said Bill Wrigley.

Between them, Mars and Wrigley employ 64,000 people and generate global sales of $27bn annually.

Wrigley's gum brands such as Juicy Fruit, Spearmint and Doublemint became global names during the war when the company diverted its entire production line away from consumers to supply America's armed forces.

But the American firm has come under assault in recent years from Cadbury, which has been making inroads with its Trident gum.

Mars, meanwhile, is more diversified. In addition to snacks such as Milky Way, Snickers and Starburst, its sprawling holdings extend to Dolmio pasta sauces, Uncle Ben's rice and Whiskas cat food.

The firm was founded by chocolate maker Frank Mars in 1911 and his three surviving grandchildren - Forrest, John and Jacqueline - are each estimated by Forbes magazine to be worth $14bn.

Behind-the-scenes negotiations to strike the deal have taken only three weeks despite a difficult environment for financing large transactions as banks nurse losses from the global credit crunch.

"There's no question financial markets are very challenging now," said the Wrigley chairman. "Coming up with the capital to make this deal happen was a challenge."

Mars approached Buffett's Berkshire Hathaway investment company for help in putting together the cash, and the 77-year-old Nebraska-based billionaire was enthusiastic to get involved.

"I've been conducting a 70-year taste test on the products since I was about seven years old," Buffett told CNBC television yesterday.

The insurance tycoon is renowned for snapping up relatively low-tech businesses with a long track record.

"There's really nothing that can go wrong with something like the Wrigley or Mars brand," said Buffett. "It's literally true that they've faced the test of time over decades and decades and decades. People use more and more of their products every day."

He added he preferred investing in simple propositions such as chewing gum rather than the kind of complex financial firms that have come unstuck on sub-prime mortgages.

"I understand a Wrigley or a Mars a whole lot better than I understand the balance sheet of some of the big banks. I know what I'm getting on this and [with] some of the large financial institutions, I really don't know what's there."

As a first step toward integration, Mars will merge its non-chocolate sweets brands such as Starburst and Skittles into Wrigley's operation. Wrigley's factories include a production site in Plymouth which employs 600. In a letter to staff, Bill Wrigley said the deal would lead to growth and career development, not job cuts: "The true value of this combination arises primarily from enhanced prospects for growth."

For Cadbury Schweppes, the loss of market leadership could prompt pressure for a deal to expand its minimal confectionery presence in America. It held talks about buying US firm Hershey's last year but these came to nothing, partly because of Hershey's intricate ownership structure with control in the hands of a charitable trust. Analysts said Wrigley's purchase by Mars left Cadbury potentially vulnerable to a takeover. Cadbury's shares, weak in recent months, jumped 15.5p to 579p.

Andrew Wood, an analyst at Sanford Bernstein in New York, wrote in a clients' note: "There is potential for further consolidation of the global confectionery industry and now, as a standalone confectionery business, Cadbury could be a very attractive acquisition target."

In numbers

300 Sticks of gum chewed by the average American each year

1848 Year the first commercial gum was sold: Maine Spruce Pure Gum was made from red spruce resin

53 Square miles of mint farms to provide Wrigley's with mint oil

£4.3m Annual cost of removing gum from London streets and tube stations