What were the compelling reasons for Mars (an unlisted company) to acquire

Wrigley? What were the compelling reasons for Wrigley (a listed company).

Answer:

Mars would like to acquire Wrigley for the following reasons:

To strengthen and diversify its position in the confectionary business

worldwide. It will have wider geographic presence and new markets and a
variety of new products.

To increase its market power and become Worlds biggest Candy maker.

To effectively compete in an industry where competition is intensifying

and the price of milk and sugar are on a rise.

To encash the brand Value of Wrigley which is a known name in the

confectionary market.

To increase efficiency and reduce operating cost.

The compelling reasons for Wrigley are the following:

Tough competition from other companies and declining sales rise.

A very good price paid by Mars Inc.

Mars intention to run Wrigley as a separate, standalone subsidiary with

high degree of autonomy and retaining its management and employees.

The combined entity could face the competition better and emerge as more
successful and profitable.

Is this a case of Merger or Acquisition? Why? How would you classify the coming
together of the two companies Vertical, Horizontal, Conglomerate or
something else?
Answer:

This is the case of Acquisition. Because Mars Inc. would buy Wrigley and Wrigley
would be a subsidiary of Mars Inc. Mars is paying hefty consideration to acquire
Wrigley and though the management of Wrigley will almost be the same, the
executive chairman of Wrigley would report to Paul Michaels, Global President of
Mars.
This is Horizontal acquisition. Because both the business are similar and this

acquisition expands buying companys scope.

What was the structure of the combined entity post acquisition of Wrigley?
Answer:

Wrigley would function as a separate, standalone subsidiary with high degree of

autonomy. The executive chairman and other executives including the CEO will stay
in place. No employee cuts are planned. Only the executive chairman Wrigley would
report to Paul Michaels, Global President of Mars. The financing would be done
through equity, debt from two big financial institutions and debt from Warren
Buffets Berkshire Hathaway Inc. which will also own a part of equity in the post
acquisition company.

What is the impact of this M&A for the industry?

Answer:

The combined entity will emerge as the Worlds largest Candy maker with $27
billion in annual sales and 14% of worlds candy market which makes it the
largest candy maker in the world, surpassing Cadbury Schweppes, PLCs 10.1%
share. It will control the highest share of consumer purchase of the U.S. candy
market. The merger and acquisitions started having a Reverse Termination Fees in
a big way.

On reading these two reports, what are the various aspects, from your
perspective, that make this deal a stand out illustration?
Answer:

The various aspects which make this deal a stand out illustration are the
following:
The Position of Wrigley as a Separate, Standalone entity with considerable
autonomy and retaining of the previous management and employees.
The view to handle competition, increase efficiency and decrease cost by
coming together.
Use the brand name of the companies to capture a greater market share
and expand the product offerings.
It creates a vast variety of products starting from candy to pet food to
come under one umbrella and thus the offering range becomes very
diverse.

Who are the various players in this transaction and how do you think that the
players would have influenced the outcome of this deal? (In other words, how
do you think each player involved in this deal would have contributed to this
deal?)
Answer:

The various players in this deal are:

Mars Inc.: The buying company. By offering to pay a premium of 28%

over the prior days market price of Wrigley which was very lucrative to be
denied. They paid a sum of $23 billion at $80 per share. They also made
the terms of agreement in such a way that provided greater autonomy to
Wrigley but also contain a clause wherein they could walkway from the
transaction on payment of a Reverse Breakup Fees.

Warren Buffets Berkshire Hathaway Inc.: Party to the buy. Warren

buffets company not only provided $4 billion loan to Mars but also
agreed to buy $2.1 billion stake in the Wrigley division once the purchase
is completed. Warren buffet reputation provided a security to Wrigley who
agreed to accept a transaction without specific performance and 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. Also no firm would challenge his offer.

Wm. Wrigley Jr. Co.: The target company. The company offered to sell
itself on the terms and payment agreed upon with Mars Inc. the company
with its global presence and famous products would add value to Mars
Inc. and help it in diversifying its product and geographical reach. It
agreed to work as a subsidiary company and to the terms laying down
work away right to the buyer.

Goldman Sachs Group inc. and J.P. Morgan Chase and Company : apart
from providing financial advice to Mars Inc. they would also finance the
deal and being a big name would lend credibility to the deal. Goldman
Sachs would also facilitate the debt of $5.7 billion going into Wrigleys
Balance Sheet after closing. J.P. Morgan Chase and Company agreed to
furnish $11 billion in debt that would stay with the Parent.

Summarise the various valuation aspects of this deal. Do you think that Mars
over paid for this M&A? Why?
Answer:

The valuation aspects of this deal are

The fair market value of Wrigley.

Synergy premium including revenue enhancement through increased

market power, better and more efficient marketing efforts, entry into new
market, expansion in product range and operating efficiency arising from
economics of scale and more efficient management.

The deal price is fair enough because of the synergy benefits Mars would acquire.

It will get entry into new markets and efficient distribution system which would
help it to market its product in better way also, since this is a horizontal merger
the Mars will add to its product range and this deal will also enhance its brand
image. It will emerge as the largest Candy maker which enhances its reputation.
Also it will be able to handle the intensifying competition and price rise in the raw
material in a better way. Thus the benefits it gets from acquiring Wrigley
adequately are compensated by the price it pays.

How did Mars plan to finance the transaction? How did financing aspect of this
deal influence the proposed structure?
Answer:

The financing would mainly come from Marss Banker J.P. Morgan Chase & Co.
who will furnish $11 billion in debt. Goldman, Sachs & Co. which also provided
financial advice to Wrigley would fund the deal with $5.7 Billion as senior debt
facility which would go into Wrigleys Balance Sheet after the completion of the
deal. The balance amount would be acquired in a form of debt by Warren Buffett's
Berkshire Hathaway Inc. which would buy $4.4 billion of subordinated Wrigley's
debt. It would also purchase $2.1 billion in Wrigleys Stock after the completion
of the deal.

Well, this is a tough one! Prepare a M&A Balance Sheet for both the
companies (you will have to make reasonable and suitable assumptions).
In the books of Mars Inc.
M&A Balance Sheet

Equity & Liabilities

Amount

Assets

Loan (JP morgan)

11.0 Assets

Contigent Liability

12.2

-Subsidiary (Wrigley)

23.2

In the books of Wrigley

M&A Balance Sheet
Amou
Equity & Liabilities
nt
Assets
Cash and Bank
Equity
balance
-Berkshire Hathaway
2.1
-Mars Inc
11.0
Loan (Goldman Sachs)
5.7

Amount
23.2
23.2

Amou
nt
23.2

Subordinated debt
(Berkshire Hathaway)

4.4

23.2

23.2

Assumption: if Wrigley is not able to pay its liability then Mars Inc. will be liable
to pay its Liabilities.

What kind of innovation did Mars bring into this deal structure that was not
prevalent earlier with other M&As? Briefly explain your understanding of this
innovation. In this context, explain the following terms:
a) Specific performance
b) Break-up fee
c) Reverse break-up fee
d) Walk out
Answer:

Mars inc introduced a concept of Reverse Breakup fee where in if it walks out of
the deal due to sum financing or other problem it can do so on a payment of $1
billion reverse Breakup fee and explicitly barred specific performance.

Specific Performance: Specific Performance is the obligation that requires

carrying out a specific act, what is stated in a contract. It can be forced upon
the party which backs up from the contract to save guard the interest of the
innocent party. Orders of specific performance are granted when damages are
not an adequate remedy. Thus it is an equitable rather than legal remedy.

(Reference: http://en.wikipedia.org/wiki/Specific_performance )
In this case, Specific Performance means carrying out the deal and the actual
transaction taking place which has been barred

Breakup Fee: A breakup fee (sometimes called as termination fee) is a penalty

levied on the target company in a takeover agreement if the target company
backs out from the deal because of some more lucrative offer or any other
reason. This compensates the original buyer for his time and resources
expended and inhibit Target Company to go for such an action.
(Reference: http://en.wikipedia.org/wiki/breakup_fee)

In this case nothing has been mentioned about breakup fee. Only reverse breakup

fee has been discussed.

Reverse Breakup Fee: if the buying company walks out of the deal because of
lack of financing or some other reason, the damage it pays to the target
company to avoid lawsuits, disruption of business operation, and the loss of
key personnel during the period the company is operational is known as
Reverse Breakup Fee.
(Reference: http://en.wikipedia.org/wiki/breakup_fee)

In this case Mars Inc can walk away from the deal on the payment of Reverse
Breakup fee of $1 billion.

Walkout: Walkout is the non execution of the deal wherein one of the parties
abandons the deal because of inability or some other more lucrative offer. It is
like breaking an alliance.
In this case Mars Inc can walk out from the deal on the payment of Reverse
Breakup fee of $1 billion.

What was the impact of the announcement of the deal on the stock market
prices of Wrigley and Mars? Who gained? Why do you think the competitor share
prices increased even though they are not part of THIS M&A process?
Answer:

The stock price of Wrigley shot up by 23% in New York Trading the day after the
announcement that Mars would pay $80 per Share to Wrigley. It went up to
$76.91 per share which it had never achieved before. Mars Inc. was not listed in
the Stock exchange.
Wrigley gained as well as the competitor of the industry.
The competitor share price surged even though they were not a part of this M&A
process because of the further anticipation of such a M&A taking place between
rival companies. It was necessitated to face the intensifying competition and met
the price rise of milk and sugar through cost saving and efficient management of
the combined entity. Hershey shares shot up almost 5%, while Cadbury's U.S.listed shares rose nearly 3%. Shares of Tootsies Roll Industries Inc. also were on
the rise, up more than 6%.

Track the stock prices of Wrigley and Mars, post this acquisition until Sep 2011.
Answer:

Wrigley was delisted after it was acquired by Mars Inc. Mars itself is not listed in
any exchange. The data available here shows that the price moved upward till 6 th
of October 2008 when it was delisted.

Date

Pric
e

08-09-2008

79.5
9
79.4
5
79.5
3
79.5
8
79.5
0
79.0
0
79.1
3
78.0
0
79.5
0
79.6
5
79.0
0
79.4
5
79.5
3
79.5
8
79.6
3
79.0
6
79.4
0
79.5
2
79.6
7
79.7
7
79.9
7

09-09-2008
10-09-2008
11-09-2008
12-09-2008
15-09-2008
16-09-2008
17-09-2008
18-09-2008
19-09-2008
22-09-2008
23-09-2008
24-09-2008
25-09-2008
26-09-2008
29-09-2008
30-09-2008
01-10-2008
02-10-2008
03-10-2008
06-10-2008

(Refernce:
www.wrigley.com/global/documents/historical_stock_prices_2000_through_2008c.pdf)

Post the Wrigley acquisition, what are the major developments in global
markets for corporate control in Snacks and Food Industry.
Answer:

Several M&A have taken place to gain major share in the snack and food industry.
One of the biggest acquisitions has been hostile takeover of Cadbury by Kraft
foods limited in January 2010 at price of 840 pence per share which was paid
partly in cash and partly in equity totalling to 11.9 billion.
PepsiCo in November 2011 defeated Bunge Inc. And Mexicos Grupo Bimbo to
win the bidding for Mabel which is a Brazilian Biscuit manufacturer for
consideration between 800 million Brazilian reais and BRL 900 million. Mabel
manufactures 1.5 million biscuits every day.
(Reference: www.potatopro.com/Lists/News/Dspform.aspx?ID=6118)

Nestle is in talks with Chinese Snack and Candy maker Hsu Fu Chi International
Limited on acquisition. It is to be approved by Chinese regulator Guangdong
Province based Hsu Fu Chi has a market capitalisation of $2.6 billion. In may
Yum! Brands Inc owner of Kentucky Fried Chicken fast-food chain, offered to
buy Little Sheep Group Ltd in a deal that valued the operator of hot pot
restaurants at $6.7 billion ($861 million).
(Reference: www.chinadaily.com.cn/bizchina/2011-07/05/cotent_12836400.htm)

Several other merger and acquisition has taken place while some other are in the
pipeline these M&A are supposed to change the entire face of Snack and Food
Industries.