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Read the first two internet articles which documents the M&A at the time

of announcement and the third article which is a review of the deal after
six months of the announcement. Answer the questions given at the end.

Mars, With Buffett, to Buy Wrigley for $23 Billion (Update7)

By Chris Burritt

April 28 2008 (Bloomberg) -- Mars Inc., backed by billionaire Warren Buffett, agreed to
buy Wm. Wrigley Jr. Co. (WWY:US) for $23 billion to create the world's biggest candy

Wrigley surged 23% in New York trading today after the companies said Mars would pay
$80 for each of the gum maker's shares, with Buffett's Berkshire Hathaway Inc.
providing part of the financing. Mars is offering 28% more than Chicago-based Wrigley's
closing price on April 25.

The combined company will have $27 billion in annual sales and 14% of the world's
candy market. Buffett will get more than 10% of Mars's Wrigley unit. Mars, the maker
of M&Ms and Snickers, will add its Starburst and Skittles candies to 117-year-old
Wrigley's Lifesavers and Altoids brands.

“It's a great price”, said Thomas Burnett, director of research at New York-based Wall
Street Access. “Nobody is going to pay more than that. Who is going to go up against
Mars and Buffett?''

Mars and Wrigley together will control almost 28% of the U.S. candy market, eclipsing
Hershey Co.'s 24% share of consumer purchases, according to Euromonitor International
Inc. in Chicago, citing 2006 sales. It will also become the largest candy maker in the
world, surpassing Cadbury Schweppes Plc's 10.1% share.

The purchase will be financed with $11 billion from Mars, $4.4 billion from Berkshire
and $5.7 billion from Goldman Sachs Group Inc. Berkshire will also buy a $2.1 billion
stake in the Wrigley division once the purchase is completed.

Candy Brands

“There's really nothing that can go wrong with something like the Wrigley and Mars
brands,'' Buffett, 77, Berkshire's billionaire chief executive officer, said today in an
interview on the CNBC television network. “People are eating more and more of their
products every day.''

Berkshire also owns See's Candies, an 87-year-old confectioner in San Francisco, which
had sales of $383 million in 2007, Buffett said in his annual letter to shareholders. Mars
has annual revenue of $22 billion while Wrigley's sales were $5.39 billion last year.

Wrigley, which started trading on the New York Stock Exchange in 1923, jumped
$14.46 to $76.91 at 4 p.m. The shares had gained 6.7% this year before today. McLean,
Virginia-based Mars is the eighth-largest private company in the U.S., Forbes magazine
said in November.
“Buffett gives it a lot of credibility so there's not a financing issue here, which is so
important these days,'' Burnett said.

Hershey Shares

Hershey rose 4.6% in New York trading, while Cadbury climbed 2.8% in London as
analysts including Eric Katzman from Deutsche Bank Securities Inc. suggested other
mergers may occur. U.S. confectionary companies are exploring combinations as
competition intensifies and milk and sugar prices rise.

“Mars is primarily a chocolate company and we are primarily a chewing gum company,''
Bill Wrigley, Wrigley's chairman, said today on a conference call. Combining is “about
being able to invest for the long term and grow our business. We are very pleased with
our competitive stance.''

“Mars intends for us to run as a separate, stand-alone entity with a high degree of
autonomy,'' said Wrigley, who plans to remain executive chairman and said other
executives including CEO William Perez will stay in place. No employee cuts are
planned, Wrigley said. It had about 16,400 employees at the end of 2007.

William Wrigley Jr. began selling soap in Chicago in 1891 and eventually turned to
chewing gum, an item he was giving away for free with each sale, according to
Wrigley's corporate Web site. He introduced Juicy Fruit and Wrigley's Spearmint in
1893, two brands the company still sells today.

In 2006, Wrigley named former Nike Inc. chief Perez president and CEO, the first
person outside the Wrigley family to head the company.

Sales at Wrigley may rise 9% this year, the slowest pace since 2000, according to the
average estimate of nine analysts surveyed by Bloomberg. Competition from London-
based Cadbury's Trident and Dentyne gums in the U.S. has eroded its market share.

Cadbury, the maker of Dairy Milk chocolate, bought Pfizer Inc.'s Adams candy unit for
$4.2 billion in 2003 to become the world's second-largest maker of chewing gum.

The purchase price values Wrigley at 32 times estimated 2008 profit, compared with
about 18 times earnings for the Standard & Poor's 500 Packaged Foods Index, according
to Bloomberg data.

“This valuation looks extremely rich,'' Alexia Howard, an analyst with Sanford C.
Bernstein in New York, said in a research note today. Wrigley hasn't traded at such a
multiple since 1998, she said.

First Quarter

First-quarter net income climbed to $168.6 million, or 61 cents a share, compared with
$142.7 million, or 52 cents, a year earlier, Wrigley said today in a separate statement.
Revenue advanced 16% to $1.45 billion, helped by the weaker dollar and sales in China
and Russia.
The trust that controls Hershey discussed ways to merge the chocolate company with
Cadbury in a way that wouldn't decrease the trust's ownership, the Wall Street Journal
reported last year. Cadbury will split off its U.S. drinks unit May 7 and begin trading as
two separate companies: Cadbury Plc in London and Dr Pepper Snapple Group in the

A combination of Hershey and Cadbury probably won't happen, given the pressure that
Cadbury faces from its shareholders to improve performance, Howard said.

“The idea that Cadbury's board would approve a sizeable deal and pay a significant
control premium to acquire a weak performer in a slow-growing, developed market is
extremely unlikely,'' she wrote.

Hershey Trust spokesman Tim Reeves declined to comment.

Mars History

Mars, founded in 1911 by Frank C. Mars, is still family owned. The company gets about
45% of revenue from chocolates and other snacks. Its biggest division is pet food,
which sells Whiskas cat food and Pedigree for dogs, and accounts for 46% of sales,
according to the company's Web site.

Berkshire Hathaway, based in Omaha, Nebraska, has about $40 billion to spend on
acquisitions. Buffett has built Berkshire over four decades from a failing textile maker
into a $195 billion holding company with businesses ranging from candy making to

Berkshire has stakes in companies including Coca-Cola Co. and Buffett ranks as the
world's richest person, according to Forbes magazine.

Additional financing as well as advice is coming from JPMorgan Chase & Co, Mars said.
Simpson Thacher & Bartlett LLP is acting as its legal counsel.

Goldman Sachs and William Blair Inc. provided Wrigley with financial advice. Skadden,
Arps, Slate, Meagher & Flom, LLP served as legal adviser.

Last Updated: April 28, 2008 16:09 EDT

By Matt Andrejczak & Andria Cheng, MarketWatch

SAN FRANCISCO (MarketWatch) -- Mars Inc., backed by billionaire investor Warren

Buffett's Berkshire Hathaway Inc., just reached its hand deeper into the candy jar.

Mars said Monday it will buy 117-year-old chewing gum pioneer Wm. Wrigley Jr. for
about $23 billion -- a deal promising to combine M&M's and Snickers with Juicy Fruit
and Life Savers.

Mars, of McLean, Va., will pay $80 in cash for each share of Wrigley share, a 28%
premium over Wrigley's Friday closing price of $62.45, closely held Mars said in a

Chicago-based Wrigley, with annual sales of $5.4 billion, is known for its namesake
Spearmint and Juicy Fruit gums as well as Life Savers. Mars is paying multiples of more
than four times sales and 35 times Wrigley's 2007 earnings per share for those products
and others, based on the deal price.

The deal will create a global candy giant with annual sales of $28 billion.

Wrigley will become a stand-alone, separate Mars subsidiary, in which Buffett's

Berkshire Hathaway will make a minority investment, Mars said.

Specifically, Berkshire Hathaway will make a $2.1 billion equity purchase in Wrigley. It
will be bought at a discount to the share price being paid to the company's

In a statement, Buffett said he has been "a big fan of Wrigley's business model for
many years." His investment company has long owned San Francisco-based See's

In addition to Berkshire Hathaway, financing for the transaction is to be provided by

Goldman Sachs and J.P. Morgan. The deal is expected to close in six to 12 months.

Wrigley's shares shot up 23% to $76.91, reaching unseen levels for the stock.

In its many decades as a publicly traded company, Wrigley's stock has never before
approached the $80-a-share mark, adjusting for share splits.

The transaction is aimed at strengthening and diversifying Mars' position in the

confectionery business worldwide. Mars ranks as the world's largest chocolate maker by
sales, with market share of 15%. And its total annual sales are $22 billion, the company

A deal would expand Mars' global reach, already considerable, because Wrigley
generates 70% of its sales outside of the U.S. Its products also include Extra, Eclipse
and Orbit gums.

Chief rivals of Mars are Hershey Co. and Cadbury Schweppes, who last year entertained
merger discussions -- or some sort of affiliation -- but came up short of sealing a deal.

Since that time, Cadbury has set plans to split off its beverage unit, which includes Dr
Pepper and 7UP. The transaction is expected to be done in May.
It also sold its movie-popcorn business as part of broader plan to dispose of non-core
assets. Cadbury is a Wrigley rival, selling Trident Gum.

"A move like this could force Hershey's hand," said Matt Arnold, analyst at Edward
Jones, who rates Hershey shares a buy. "It could prompt them to go back to
negotiations with Cadbury."

A key issue for any merger negotiations would center on how much power Hershey's
controlling trust is willing to yield. The trust has grown frustrated with the chocolate-
bar maker's slumping sales and sliding stock price.

"Mars has been cleaning Hershey's clock the past 18 months," said Walter Todd, a
portfolio manager at Greenwood Capital Associates LLC, which doesn't own shares of
either Hershey or Wrigley.

In trading Monday, Hershey shares shot up almost 5%, while Cadbury's U.S.-listed
shares rose nearly 3%. Shares of Tootsie Roll Industries Inc. also were on the rise, up
more than 6%.

Changing competitive landscape

Pending completion of the Wrigley deal, Mars will manufacture everything from
chocolates to chewing gum, drinks and pet-care products. Some of its brands will
include M&Ms, Snickers, Pedigree, Wrigley's chewing gum and Altoids breath mints.

Mars will move its Starburst and Skittles brands to Wrigley, which will fold those sugar
products into its Life Savers and Altoids portfolio.

The transaction brings together the Mars family of Northern Virginia and Wrigley family
of Chicago.

Bill Wrigley Jr. will remain executive chairman of Wrigley, reporting to Paul Michaels,
global president of Mars. He will work closely with Bill Perez, Wrigley's president and
chief executive, and the chewing-gum maker's current management team, Mars said.

In recent years, Wrigley has expanded its offerings far beyond chewing gum.

In 2005, the company bought from Kraft Foods Inc. its candy assets, including Altoids
and LifeSavers, for about $1.5 billion. Wrigley also recently purchased a Russian
chocolate company.

The family-controlled company -- whose name is emblazoned on Chicago's Wrigley

Building, which it owns, and Wrigley Field, which it does not -- was close to a deal to
acquire Hershey in 2002 for about $12.5 billion, but talks fell apart at the 11th hour,
The Wall Street Journal has reported.

Separately Monday, Wrigley's reported first-quarter net income rose 18% from a year
ago to $168.6 million, while sales jumped 16% to $1.45 billion from the year-earlier

Mars Inc., with its focus on the long term, is the antithesis of a private equity firm.
Founded by Frank Mars in Minneapolis in 1920, the McLean, Va., confectionary
company is still owned by his descendents, and makes candies whose names have long
since become American icons: Mars, Milky Way, Snickers, M&M's. But when Mars
approached chewing gum manufacturer Wm. Wrigley Jr. Co. about a combination last
year, it demanded the same kind of merger agreement as might have been expected
from a PE shop - one that granted the buyer the right to walk from the deal for any

Mars got that right in the agreement the parties announced April 28, and as financing
markets worsened in the intervening year, the deal has become a model for others in
which an industry player has agreed to buy a rival.

For many years, PE firms demanded the right to walk from a deal if the financing fell
through. As the buyout shops started acquiring large public companies in the middle of
this decade, they were able to preserve that right upon agreeing to pay a so-called
reverse termination fee.

Sellers often trumpeted that their deals were not subject to financing, a claim that
turned out to be very wrong.

As the debt markets started to sour in summer 2007, the risks to the seller of such a
structure became obvious. In August of that year, Bain Capital LLC, Carlyle Group and
Clayton, Dubilier & Rice Inc. used their right to walk from the $10.3 billion purchase of
HD Supply to extract a $1.8 billion price cut on the unit from its owner, Home Depot

A host of PE shops used the right thereafter. Some walked from a deal upon payment
of the reverse termination fee, as Cerberus Capital Management LP did in paying $100
million to escape its agreement to buy United Rentals Inc.

Because the reverse breakup fee functioned as a cap on damages, other PE shops
pressured targets to accept even more modest settlements rather than endure
litigation, as Kohlberg Kravis Roberts & Co. did in walking from an $8 billion agreement
to buy Harman International Industries Inc.

Mars global president Paul Michaels and CFO Olivier Goudet would have known this
history when they contacted Wrigley chairman William Wrigley Jr. about a possible
combination on April 1. Mars had also more direct experience with the way private
equity firms buy companies; in 2006, it sold its MEI Conlux unit, a maker of devices
used in vending machines that take bills and coins and verify the amount, to Advantage
Partners and Bain Capital for a reported $500 million. The parties didn't disclose the
terms or release the merger agreement, but in such deals the private equity shop
would typically receive a financing out.

Michaels and Goudet offered $76 per share for Chicago-based Wrigley when they met
with the chairman, a descendent of the company's founder, on April 11. Mars said it
would only agree to the acquisition if the target assented to a merger agreement that
allowed Mars to walk for any reason on payment of a reverse breakup fee and
explicitly barred specific performance. In addition, Mars also promised to keep Wrigley
as a standalone subsidiary, which would allow Mars to put some of the debt incurred in
the deal on Wrigley's balance sheet rather than its own.

"The proposed structure had not been used in a strategic deal but had been used in PE
deals, so the precedents were more on the PE side," says John Finley, a partner at
Simpson Thacher & Bartlett LLP in New York who led the legal team that represented

The deal came together quickly after Finley served up a draft merger agreement to
Wrigley's lead lawyer, William Kunkel at Skadden, Arps, Slate, Meagher & Flom LLP, on
April 17.

Mars raised its bid to $80 a share but held firm on the contractual conditionality.
William Wrigley himself negotiated the reverse termination fee of $1 billion that Mars
would owe if it walked.

The buyer also lined up the financing it would need for the $23 billion purchase. Mars'
banker, J.P. Morgan Chase & Co., agreed to furnish $11 billion in debt that would stay
with the parent. Goldman, Sachs & Co., which advised Wrigley, provided a $5.7 billion
senior debt facility that would go on Wrigley's balance sheet after closing.

And Warren Buffett's Berkshire Hathaway Inc. would buy $4.4 billion of subordinated
Wrigley's debt and $2.1 billion in Wrigley stock. The financing sources helped to
reassure Wrigley's board, Kunkel says. "To be able to bring together two strong
financial institutions and Warren Buffett helped to create a willingness on the part of
the Wrigley board to accept a transaction without specific performance."

But, he adds, "to have a $1 billion reverse termination fee, which in this situation
would have come out of the Mars family's pocket, was another feature that helped
people to be willing to do something that was unprecedented."

Not least on the board's mind was the generous premium. At $80 per share, Mars was
offering 28% more than Wrigley's closing price on April 25, the last trading day before
the transaction was announced.

The deal closed 5-1/2 months later, on Oct. 6.

Goldman and J.P. Morgan were able to syndicate the debt in August and early
September, before the credit markets collapsed after Lehman Brothers Holdings Inc.
filed for bankruptcy.

Other strategic buyers soon emulated Mars, though none got as broad a walk right.
Ashland Inc. agreed to buy Hercules Inc. for $3.3 billion on July 10 under a merger
agreement that allowed Ashland to walk upon payment of a reverse breakup fee if the
financing on the deal failed, but otherwise allowed Hercules to sue for specific

The Ashland acquisition of Hercules closed on its original terms, but Brocade
Communications Systems Inc. used a similar right to extract a $500 million price cut
from Foundry Networks Inc. That deal was announced July 21 and closed Dec. 19.

And JDA Software Group Inc. walked from its $613 million agreement to buy supply
chain software company i2 Technologies Inc. upon payment of a $20 million reverse
breakup fee.
The largest strategic deal in which the buyer has such an out is Pfizer Inc.'s $68 billion
agreement to purchase Wyeth, announced Jan. 26. And with the financing markets still
deeply troubled, there's no end in sight to the trend Mars began in buying Wrigley.


1. What are the takeaways from the class discussions that you can carry forward to
the analysis of Mars acquisition of Wrigleys?
2. Summarise the various valuation aspects of this deal. Do you think that Mars
over paid for this M&A? Justify your answer.
3. How did Mars plan to finance the transaction? How did financing aspect of this
deal influence the proposed structure. Prepare a ‘M&A Balance Sheet’ for both
the companies (This is a tricky question – you will have to make reasonable and
suitable assumptions). DO NOT get into the Annual Reports (you won’t get them
any way – I am asking for M&A Balance Sheet – Remember, a Balance Sheet is
made up Assets and Liabilities. As simple as it can get!)

NOTE : Each team will be credited with 30 points before evaluation of the
answers. Points will be deducted for errors and omissions. Bonus points will be
credited for outstanding ideas. While you are most welcome to ‘google’ for
references, write your answers in your words. You don’t get credit for someone
else’s IP. If you quote from web sources, give credits (next to the quote and not
at the end). Penalty points will be debited for ‘cut and paste’ without
application of mind!

Last date for submission : March 05, 2011