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Wednesday, April 30, 2008

SEEKING ALPHA:Berkshire's Wrigley Financing-Slow and Steady Wins the Race

Susan M. Mangiero, Seeking Alpha , 30 April 2008

When I was a young MBA pup (New York University), an investment professor asked students to purchase "Security Analysis" by Benjamin Graham and David Dodd. Not an unusual choice until one noticed the 1940 copyright. My reaction at the time was to think that this scholar needs to retire soon if he can't find a more modern text. Alas, the marvels of youthful ignorance, heh?

This flashback came to mind in reading the flurry of newspaper articles about the intended $23 billion purchase of Wm. Wrigley Jr. & Co. (WWY) by private candy giant Mars Inc. Helping to finance things is no other than Warren Buffett who negotiated an approximate 10 percent of the deal for Berkshire Hathaway (BRK.A) (BRK.B). With a stake in Sees Candy and the Coca-Cola Company (KO), this uber value investor is familiar with beverages, salty snacks and sweets. (Note that Thomson Financial News, via, reports that Moody's Investors Service has put some of the Chicago gum giant's debt ratings under review as a result of the proposed structure.)

According to "Mars to Buy Wrigley’s for $23 Billion" by New York Times reporter Andrew Ross Sorkin (April 28, 2008), Wrigley's sales revenue just topped $5 billion. The National Confectioners Association reports that "gum sales continue to surge growing 9.3% over the latest fifty-two weeks" with the "key growth engine" being "seasonal confectionary products."

This news item is interesting but even more so after reading "Inside Citi, a Hedge-Fund Push Blows Up" wherein Wall Street Journal reporter David Enrich describes sales enthusiasm gone amuck. Having sold interests in "safe" fixed income hedge funds Falcon and ASTA/MAT to retail clients, global wealth management staffers are wrestling with a lawsuit, unhappy brokers and disgruntled investors. The article continues that Citi sold "only to clients with large, diversified portfolios." As litigation ensues (assuming it does), more will be known about sales practices and representations made to clients, existing and prospective.

Will an ordinary stick of gum pave the way for riches and leave certain "exotic" alternatives in the dust? One wonders - shades of the tortoise versus the hare? What are the lessons for retirement plans as billions of dollars are making their way into non-traditional securities?

CNBC:Buffett's Burlington buy brings the bucks

Posted By:Alex Crippen
Topics:Railroads Commodities Warren Buffett
Companies:Burlington Northern Santa Fe Corp Berkshire Hathaway Inc.

Warren Buffett's 18 percent stake in Burlington Northern Santa Fe is worth even more today (Tuesday), after the railroad reported a 30 percent increase in first quarter earnings, beating Wall Street's expectations. (BNSF's Q1 conference call has been posted on the company's web site.)

The stock is once again traded at an all-time high today, approaching $106 a share before retreating.

Burlington Northern's profits are getting help from the commodities boom. While the railroad's fuel costs are higher, it's doing big business moving in-demand agricultural products and coal. Revenues from moving ag products increased a whopping 38 percent to $866 million.

As we noted about two weeks ago in the WBW post Warren Buffett's Railroad Ride Paying Off as Burlington Northern Hits All-Time High, Burlington shares have been rallying strongly since Buffett's Berkshire Hathaway completed its most recent round of Burlington buys in January. At midday today, they're up almost 35 percent from the close on January 22. That was the last day of a string of purchases in the mid to high $70s.

As you can see from the links at the bottom of this post, Buffett also accumulated Burlington shares last summer and fall.

Later today on CNBC's Fast Money at 5p and 8p ET, Dylan Ratigan and the traders will discuss how Buffett has been "going to work" while almost everyone on Wall Street is mired in the credit crunch.

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Buffett Buys Burlington

Burlington Northern Rallies Over 15% After Warren Buffett's Daily Buying Spree (February 4)
Warren Buffett Keeps Chugging With Daily Burlington Northern Buys (January 24)
Warren Buffett's Burlington Northern Stake Tops 18% As Daily Buying Spree Rolls On (January 19)
Warren Buffett's Burlington Northern Stake Nears 18% As Buying Accelerates (January 16)
Warren Buffett Resumes Burlington Northern Stock Buys, Adding to Stake Every Day This Week (January 10)
Warren Buffett Edges Burlington Northern Stake Higher in First Buy Since October (January 10)
Warren Buffett Was Selling Two Railroads As He Bought a Third (October 15, 2007)
Warren Buffett's Burlington Northern Stake Tops 17% as Berkshire Hathaway Exercises Options (October 5)
Berkshire Hathaway Buys a Few More Burlington Northern Shares (September 24)
Warren Buffett's Berkshire Hathaway Adds to Burlington Northern Options (September 20)
Why Warren Buffett Is Riding the Rails (Sept. 7)
Warren Buffett's Berkshire Hathaway Moves to Boost Burlington Stake Yet Again (Sept. 4)
Warren Buffett's Berkshire Hathaway Buys Burlington For Fourth Time This Month (August 30)
Burlington Northern: Just What's Warren Up To? (August 28)
Warren Buffett's Berkshire Hathaway Still Riding the Rails with $800 Million Stock Buy (August 27)
Rail Stocks Rally After Another Warren Buffett Buy (August 20)
Warren Buffett Boosts Burlington Northern Stake .. Again (August 17)
Buffett Boosts Bet on Burlington (August 8)

CNN MONEY: PBS asking 3 Buffett children about their dad

April 29, 2008: 02:40 PM EST

NEW YORK (Associated Press) - Warren Buffett's three children will be sharing their memories about growing up with the financial wizard who has become the world's second-richest man.
PBS' "Nightly Business Report" is featuring videotaped interviews with Howard, Susie and Peter Buffett.

The three-day series begins Tuesday night with Howard Buffett, who says he's a farmer at heart.

His father says Howard will succeed him as chairman of the board for the family business, Berkshire Hathaway, which owns furniture, insurance, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as The Coca-Cola Co. and Anheuser-Busch Cos.

Berkshire's annual meeting is set for Saturday in Omaha.

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WSJ: A Great Investor gets a closer look

By DAVE KANSAS April 30, 2008; WSJ

Even Buffett Isn't Perfect By Vahan Janjigian (Portfolio, 237 pages, $24.95)

The news on Monday that the Mars candy company had bought Wm. Wrigley Jr. Inc. for $23 billion, at a premium of more than $5 billion above the gum-and-confectionery giant's market value, might have prompted some observers to wonder about the wisdom of the purchase. But Mars's move came with perhaps the ultimate seal of approval for financial perspicacity: The acquisition was backed by the fabled investor Warren Buffett. The Oracle of Omaha certainly wouldn't get involved with the M&M's-maker if there was a chance that the deal might melt in his hands, right?

Vahan Janjigian isn't so sure. In "Even Buffett Isn't Perfect," the author takes a contrarian – or at least mildly dissenting – view of Mr. Buffett's investing acumen. Of course, Mr. Buffett and the shareholders in his company, Berkshire Hathaway, will hardly be surprised to hear about his imperfections. Unlike many wildly successful investors, Mr. Buffett actually admits to error. In two recent annual letters to shareholders, as Mr. Janjigian notes, he declared himself "dead wrong" about certain decisions.

And there have been memorable stumbles over the years: A Berkshire Hathaway investment in the retailer Pier I, in 2004, unhappily preceded a big drop in Pier I's stock; more famously, a stake in Salomon Bros. in the late 1980s and early 1990s, though it eventually made money, caused more headaches than it was worth. (Salomon eventually became part of what is now Citigroup.)

What's remarkable about Mr. Buffett is that he has made so few mistakes while building Berkshire Hathaway into a stock-market titan. He strongly prefers that the investments of Berkshire Hathaway be referred to as such rather than credited to himself alone. Still, in the popular imagination it would be hard to slide a piece of paper between Mr. Buffett and his company.

And it turns out that Mr. Janjigian's heart isn't really in showing us his subject's blemishes anyway. His book's subtitle is: "What You Can – and Can't – Learn From the World's Greatest Investor." The chapters boil down to this: Mr. Buffett is a genius; Mr. Buffett makes mistakes; Mr. Buffett is a genius. Sprinkled into the mix are Mr. Buffett's views on taxes (he doesn't mind most of them) and corporate governance (do-gooders often miss the mark) and a summary of his value-oriented investment philosophy: It focuses on a company's real, or "intrinsic," value rather than on its public market share price.

In search of things to complain about, Mr. Janjigian notes that Mr. Buffett has rightly had to adjust his corporate-governance policies to provide more transparency. He chides Mr. Buffett for backing the call to account for the cost of stock options more explicitly. He carps about Mr. Buffett's approval of the estate – or "death" – tax; and he dislikes Mr. Buffett's opposition to tax cuts, arguing that the current tax system unnecessarily costs investors money.

But Mr. Janjigian also sheds light on Mr. Buffett's magic. Mr. Buffett has two large advantages that the average investor doesn't have, advantages that are often overlooked by those who try to mimic him.

First, Mr. Buffett can secure favorable terms for large investments. He has struck several private deals with public companies – such as Level 3, a telecommunications company, and Williams Cos., an energy concern – that would not have been possible without the huge amounts of money that Berkshire can bring to any transaction. (In this respect, Berkshire resembles Wal-Mart, which wins favorable terms because of its enormous volume.) Companies are pleased to secure Berkshire's blessing, too, so they are especially motivated to cut a deal.

Second, Mr. Buffett has an unusual management style. He likes to acquire good companies with good managers and let them run their own show, without much interference. This strategy has helped him to make an inordinate number of investments in which a company's owners or managers have approached him, saying, in essence: "Let's make a deal." In recent years he has purchased Clayton Homes and Business Wire in this manner. In his folksy way, Mr. Buffett describes these deals as though they were struck over coffee at the local diner before the flapjacks arrived. But Mr. Janjigian notes that, behind all the Midwestern amiability, Mr. Buffett surely has sharp analysts combing through every detail.

Mr. Janjigian also helpfully notes what is at the heart of Berkshire Hathaway's business and investment firepower. For all the various companies owned by Berkshire – See's Candies, Dairy Queen, Borsheim's Fine Jewelry – the most important holdings in the portfolio concern the humdrummish business of insurance. Mr. Buffett loves insurance because he has effectively used the "float" – premiums paid on various insurance instruments – to make his winning investments. He has also shown that he can run a pretty canny insurance operation all by itself. After getting dinged by hurricanes in 2005, Berkshire has benefited from higher premiums and rather fewer hurricane problems.

In fact, the success of Berkshire's insurance business has left Mr. Buffett often musing that he doesn't know what to do with all his cash. Given that on Monday Berkshire put billions into the Mars purchase of Wrigley, the Oracle now will have something to chew on as he contemplates his next move.

Mr. Kansas is president of, a personal finance Web site owned by Dow Jones & Co. Inc. and IAC Corp.

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ASSOC PRESS: New head of General Re appointed

General Re Corp., the insurer owned by billionaire investor Warren Buffett's Berkshire Hathaway Inc., named I. John Cholnoky manager of the unit that sells property and casualty coverage to companies.

Cholnoky was also elected to the company's board of directors, Stamford-based General Re said in a statement distributed by Business Wire yesterday.

His appointment follows the promotion announced earlier this week of Berto Sciolla to executive vice president of General Reinsurance Corp. and manager of General Re's North America Treaty operation.

"Berto Sciolla, who has been with Gen Re for more than 23 years, including over 10 years in Bermuda and London, is an exceptional reinsurance professional," said Tad Montross, chairman and cheif executive officer of Gen Re. "Berto's leadership ensures taht we will deliver the best of Gen Re to our clients."

Gen Re also appointed Tony Sammur as president of Gen Re Intermediaries and announced that J. Daniel Hickey, formerly manager of Gen Re's North America Treaty operation, has resigned after 17 years with the company.

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Tuesday, April 29, 2008

MOODIE REPORT: Wrigley to be merged into Mars in US$23 billion confectionery deal

Source: The Moodie Report

By Martin Moodie, 29 April 2008

US. Wm Wrigley Jr Company is to merge with Mars Incorporated, one of the world's leading confectionery and consumer goods companies, in a US$23 billion deal.

Mars has agreed to pay US$80 cash for each share of Common Stock and Class B Common Stock of the Wrigley Company. As a result of the transaction, Wrigley will become a private enterprise and part of one of the world's premier family-owned companies.

The combined organisation will have a product portfolio containing some of the strongest confectionery brands - including Orbit, Extra, Doublemint, M&M's, Snickers and Mars – as well as leading food, beverage and pet care brands, totalling over US$27 billion in global sales.

The terms of the transaction have been unanimously approved by the Wrigley Board. The deal is subject to customary closing conditions, including stockholder approval and certain governmental regulatory clearances.

The star-studded, gum-dominated Wrigley portfolio will complement the powerful Mars chocolate and sugar confectionery line-up
Funding for the transaction includes approximately US$11 billion from Mars, a US$5.7 billion committed senior debt facility from Goldman Sachs, and US$4.4 billion of subordinated debt from Berkshire Hathaway Inc. The latter has committed to purchase a minority equity interest for US$2.1 billion in the Wrigley Company subsidiary at a discount to the share price being paid to the stockholders of Wrigley.

Based on Wrigley's closing share price of US$62.45 on April 25 2008, and its three-month weighted average share price of $59.88, this price represents a premium of 28% and 34%, respectively, to the Company's stockholders. The price represents 4.3 times Wrigley's 2007 net sales and over 35 times Wrigley's 2007 earnings per share.

Mars Incorporated will acquire 100% of Wrigley's outstanding shares and all of its outstanding options will be cashed out.

The Wrigley Company will operate as a separate, stand-alone subsidiary, keeping its headquarters in Chicago and continuing its civic and philanthropic involvement, both locally and in its communities around the world.

"First and foremost, this is a great transaction at a great price that provides tremendous value to Wrigley stockholders," noted Bill Wrigley Jnr, Executive Chairman and Chairman of the Board (who will continue serving as the company's Executive Chairman).

"Additionally, in terms of Wrigley's ongoing business, the true value of this transaction arises primarily from enhanced growth opportunities, including the potential for cross-pollination of people, ideas and brands, and significant enhancements of sales, marketing and distribution infrastructures.

“We see this as an historic opportunity to preserve what is special about the Wrigley Company in terms of values and culture, while continuing to grow and develop our associates, invest in our brands and drive long-term generational growth. So, from every perspective, I strongly support the transaction."

"Mars and Wrigley have much more in common than multi-generational family leadership and significant global footprints," commented Paul S. Michaels, Mars Global President. "We share common values and ways of doing business, including an emphasis on ethics and respect for people, focus on generational growth, and expertise in obtaining consumer insights and building enduring brands.

“This is not about being bigger – it’s about being the best, and providing leadership and innovation across the full range of confectionery categories."

"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 Warren Buffett, Chairman and Chief Executive Officer of Berkshire Hathaway.

"When you think of a business that's easy to understand, with favourable 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."

REUTERS: Buffett says recession may be worse than feared

By Jonathan Stempel

Mon Apr 28, 2008 11:09am EDT

NEW YORK (Reuters) - Warren Buffett, the world's richest person, said on Monday the U.S. economy is in a recession that will be more severe than most people expect.

Buffett made his comments on CNBC television after his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) agreed to invest $6.5 billion in the takeover of chewing gum maker Wm Wrigley Jr Co (WWY.N: Quote, Profile, Research) by Mars Inc in a $23 billion transaction.

"This is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think," Buffett said. "This will not be short and shallow.

"I think consumers are feeling gas and food prices," he added, "and not feeling they've got a lot of money for other things."

He was not immediately available for further comment. Known for his frugality, the 77-year-old Buffett has lived in the same 10-room Omaha, Nebraska, house for a half-century, despite being worth an estimated $62 billion.

On Wednesday, the U.S. Commerce Department is expected to say how fast the economy grew in the first quarter. Economists on average have projected that gross domestic product grew at an annualized 0.2 percent rate in the quarter.

Two quarters of declining GDP is a traditional indicator of recession. That last happened in 2001. Economists expect the U.S. Federal Reserve on Wednesday to cut a key lending rate for a seventh time beginning last September.

Berkshire is a $197 billion conglomerate best known for its insurance holdings, such as auto insurer Geico Corp, but it owns more than 70 businesses.

Many of those businesses are tied to the housing market, including Acme Brick Co, insulation maker Johns Manville, and the real estate brokerage HomeServices of America Inc.

Others depend on consumers to spend more on discretionary items, such as Ben Bridge Jeweler and Borsheims Fine Jewelry.

"In the retail businesses ... if anything, they've gotten a little worse," Buffett said. "Of course, things connected with housing, whether it's in brick or whether it's in carpet, those businesses have shown no uptick at all. Jewelry had a bad Christmas ... and it stayed that way."

Buffett sees no respite from the housing slump.

"I think this is going to be fairly long and fairly deep, but who knows," he said.

In March, Forbes magazine pegged Buffett's net worth at $62 billion, ahead of Mexican tycoon Carlos Slim's $60 billion and Microsoft Corp (MSFT.O: Quote, Profile, Research) Chairman Bill Gates's $58 billion. Gates is a friend of Buffett and a Berkshire director.

(Editing by John Wallace)

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MONEY TIMES: Wrigley board approves merger with Mars

by MT Bureau - April 29, 2008

Chicago -- Chicago chewing gum maker Wm. Wrigley Jr. Co. announced Monday it had agreed to a merger with Mars Inc. for $23 billion.

The merger combines Mars -- maker of M&M's, Snickers and Skittles -- with Wrigley -- maker of LifeSavers, Altoids and various brands of chewing gum.

The terms, unanimously approved by Wrigley's board of directors, includes $80 cash for each share of common stock. Wrigley's average share was valued at $62.45 Friday, a company news release said.

"This is a great transaction at a great price," Executive Chairman Bill Wrigley Jr. said in the statement.

The sale would turn publicly owned Wrigley over to "one of the world's premier family-owned companies," the release said.

"Mars and Wrigley have much more in common than multi-generational family leadership and significant global footprints," said Paul S. Michaels, president of Mars Global. "We share common values and ways of doing business."

Funding for the deal includes minority equity interest of $2.1 billion from Berkshire Hathaway, controlled by the world's richest man, Warren Buffett.

"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," Buffett said.

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DAILY TELEGRAPH UK: Mars $23bn deal for Wrigley will reshape the industry

By James Quinn, Wall Street Correspondent

Last Updated: 8:15pm BST 28/04/2008

Consumer goods group Mars has agreed a deal to buy chewing gum giant Wrigley for $23bn (£11.5bn).

The deal, which is backed by billionaire investor Warren Buffett, will change the shape of the global confectionery market and could trigger the re-opening of merger talks between Cadbury and Hersheys.

Warren Buffett's investment group Berkshire Hathaway and the chocolate giant Mars are expected to announce plans to acquire Wm Wrigley for $22bn, in a deal that would unite two of America's largest confectionary groups, according to reports in the US press
Wrigley launched Juicy Fruit gum in 1893

Wrigely’s shareholders are being offered $80-a-share, a 28.1pc premium to its $62.45-a-share closing price on Friday night under a deal that has been recommended by the boards of both Mars and Wrigley.

Shares in Wrigley traded up $14.54 at $76.99, implying that investors believe the premium being paid by Mars is enough to gain control. Mr Buffett’s Berkshire Hathaway will purchase a $2.1bn (£1bn) equity stake in the combined confectionery business at an as yet undisclosed discount to the price being paid to Wrigley investors, with further backing coming from investment banks Goldman Sachs and JP Morgan.

Berkshire Hathaway is also providing $4.4bn of sub-ordinated debt to Mars in order to fund the deal.

Mars and Warren Buffett's Berkshire Hathaway are set to announce plans to aquire Wrigley for $22bn

“Both companies have great brands,” said Mr Buffett. “There’s really nothing that can go wrong with something like the Wrigley and Mars brands.”

As a result of the deal, Wrigley will become a stand-alone subsidiary of Mars, and will take control of all Mars’ non-chocolate confectionery brands such as Starburst and Skittles.

Bill Wrigley Junior will remain executive chairman of Wrigley, and will report to Paul Michaels, who is Mars’ global president.

Mr Michaels said the transaction with Wrigley would create a shared commitment “to innovation, quality and best-in-class global brands.” He also stressed that Wrigley’s business will remain in Chicago – its home for over a century – highlighting its importance to the Mid-West city.

However, the deal, which both companies believe will take 12 months to complete, is likely to face severe regulatory scrutiny in both the US and beyond, even though the combined company will still only control 14.1pc of confectionery sales worldwide.

In the US, it will face staunch tests by federal regulators, as well as scrutiny from the Congress and the Senate, while in Europe, the European Union is almost certainly set to weigh in with its views.

Warren Buffett and Mars set to snap up Wrigley for $22bn

The deal will increase Mars’ reach yet further, providing real access to the lucrative chewing gum market, in which Wrigley’s sell its products in more than 150 countries worldwide. Analysts now predict Cadbury is likely to re-open previously stalled merger talks with US chocolate manufacturer Hershey

“Cadbury will have to look at its options and the most obvious is to re-open talks with Hershey over a merger,” said Investec Securities analyst Martin Deboo.

The pair have held talks in the past but have failed to reach agreement as the Hershey Trust, a charitable concern which controls 78pc of Hershey’s voting shares, has always said it does not want to dilute its control over the business.

A deal between the pair would make sense, because Cadbury lacks any form of strong presence in the US, while Hershey does not have the global reach which Cadbury is known for. The combination of Mars and Wrigley will create a business with more than $27bn of annual sales, dwarfing both Cadbury with annual sales of £5.2bn ($10.4bn) and Hershey, a relative minnow with just $4.9bn.

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REUTERS: S&P may cut Wrigley's ratings after Mars deal

NEW YORK (Reuters) - Standard & Poor's on Monday said it may cut No. 1 chewing gum manufacturer Wm Wrigley Jr Co's (WWY.N: Quote, Profile, Research) ratings because its acquisition by Mars Inc will increase its debt and may weaken credit quality.

M&M's candy maker Mars Inc has teamed up with billionaire Warren Buffett to buy Wrigley for $23 billion, creating the world's largest confectionery company.

Funding for the transaction includes approximately $11 billion from Mars, a $5.7 billion committed senior debt facility from Goldman Sachs, and $4.4 billion of subordinated debt from Buffett's Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research), the rating agency said.

"Given the expected increase in debt associated with this transaction, we believe Wrigley's credit measures will weaken from currently strong levels," the rating agency said in a release.

Chicago-based Wrigley had $1.2 billion of total debt outstanding at the end of March, S&P said.

S&P placed Wrigley's corporate rating of "A-plus" and its "A-1" commercial paper rating on review with "negative implications." The rating agency said this means it may cut or affirm these ratings after its review.

S&P said it will review the company's capital structure, operating plans and future financial policy with management before it makes a decision on ratings.

The deal will give Berkshire Hathaway a minority stake in Wrigley, which will become a separate Mars subsidiary. The transaction is subject to regulatory approval and is expected to close within six to 12 months.

(Reporting by Anastasija Johnson; Editing by Diane Craft)

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CNBC: Warren Buffett on Wrigley's deal-Video and Interview

Warren Buffett called into CNBC's Squawk Box this morning (Monday) to discuss Berkshire Hathaway's financing role in a $23 billion dollar deal that has candy-maker Mars buying gum-maker Wm. Wrigley Jr. Co.

That's $80 a share for Wrigley. Current price:

Wm Wrigley Jr Co

76.99 14.54 +23.28%

[WWY 76.99 14.54 (+23.28%) ]

Wrigley will become a subsidiary of Mars. Berkshire gets a minority equity stake in the new Wrigley subsidiary.


It's a classic brand-play for Buffett. In a live telephone conversation this morning, Buffett tells the Squawk Box team. "There's really nothing that can go wrong with something like the Wrigley or the Mars Brands."

Buffett says executives at Mars asked him to get involved in the deal, although he notes that acting as a "finance provider" for a deal is not a common Berkshire role.

Charles Rex Arbogast / AP
Some of the Wm. Wrigley Jr. Co.'s 14 brands, including top selling U.S. gum brands Extra, Orbit and Eclipse, are seen at the opening of the Chicago-based chewing gum maker's new research facility in a file photo from Sept. 13, 2005, in Chicago.

And in keeping with his usual hands-off stance when it comes to actually running the companies Berkshire buys, Buffett tells us that "getting operationally involved is not in the cards."

Buffett also touched on the economy during his Squawk conversation, repeating his belief that the U.S. economy is now in a recession, and that the downturn will be longer and deeper than most people think. He's also predicting a "fairly long and fairly deep" housing downturn.

Current Berkshire price:

Berkshire Hathaway Inc

128400.0 1525.00 +1.2%

[US;BRK.A 128400.0 1525.00 (+1.2%) ]

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CNBC SQUAWK BOX: Warren Buffett Finances Mars-Wrigley Deal: The Complete Interview

Warren Buffett spoke live this morning (Monday) with CNBC's Squawk Box about his role in today's $23 billion Mars acquisition of Wrigley [WWY 76.99 14.54 (+23.28%) ]. The previous Warren Buffett Watch post has the highlights.

Here is the complete interview:

Becky Quick: Warren, thanks for joining us this morning. Appreciate it.

Warren Buffett: My pleasure.

Becky: People are always trying to figure out what you're doing with your cash. Why would you look at Wrigley right now? Why this deal right now?

Buffett: Well, I've been conducting a 70-year taste test, Becky, since I was about seven years old, on the products. I've done the same thing with Mars products. And they met the 70-year taste test (laughs.) But to tell you the truth, the Mars people asked me about participating in this, and we are financing. But we are a very, very junior partner, although we will have about 6-1/2 billion dollars in it. But we are a financing partner, in effect, for Mars in this acquisition.

Becky: Six-and-a-half billion dollars, though. That's still a substantial take. What do you look at beyond just the taste test? Do you think that this is the type of a bet that makes a good deal when you're looking at economic hardship times? Is this a recession-proof play?

Buffett: Yeah. Both companies have great brands. When I talk to classes of university students, for a dozen years or more I've used Wrigley as an example ... I haven't known about Mars except that they're a provate company. But there is really nothing that can go wrong with something like the Wrigley or the Mars brands. It's literally true that they have, ah, faced the test of time over decades and decades and people use more and more of their products every day.

Joe Kernen: Warren, this is Joe. You're not going to operate this, or exert any influence operating ..

Buffett: No.

Joe: .. So it's not like we're going to see See's (Candies) somehow with a Mars, or a Wrigley. You've got Dairy Queen. I see synergies with Coca-Cola. I mean, I see a lot of things happening here, Warren, none of them good for my waistline, but I see a lot of things you could do here. But that's not what's in the cards?

Warren: That's not what's in the cards at all. No. In matter of fact Mars has had a boxed chocolate operation that they started, I don't know, thirty years ago, to compete with See's, so we're in different ends of the game. There will be no connection at all.

Joe: I see once again that your 6-1/2 billion is going into something like this and not going into a financial on Wall Street. But a lot of people think they've bottomed now. Are you finally ready to think now that maybe it's safe to put your toe in the water?

Buffett: Well, 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 in this, and some of the larger financial institutions, I really don't know what's there.

Joe: Do you feel a lessening of some of the pressures and some of the angst, some of the credit crunch? Do you think we're over the hump, Warren?

Buffett: Well, I think that what the Fed did, and I think it was proper, what the Fed did with Bear Stearns was a big line in the sand. That changed the game. At that point, the world is looking kind of different in the financial world.

Carl Quintanilla: Warren, we all know that a lot of the companies in this space are leveraged to the price of commodities, whether it's cocoa, or what have you. Do you have a comment on what we've just been talking about the past week, whether it's grains, or just global commodities in general. Does it feel toppy to you?

Buffett: Well, I've got a son that's a farmer. He's a very happy fellow. They used to tell the story out here in Nebraska about the farmer that won the lottery, and they sent a television crew out to see him. And the television interviewer said, 'You know, you've just won twenty million dollars in the lottery, what are you going to do with it? And the farmer said, 'Well, I think I'll just keep farming until it's all gone.' (Laughter.) Well, that was the situation in farming until the last year or so, but it's a different world now. And I don't know how much ethanol contributed to it, but, you know, you get twelve dollar soybeans and six dollar corn and that sort of thing, and it's going to have an effect. I'm amazed we haven't seen more inflationary effect so far with the CPI, when you consider what steel is doing, what oil is doing, what grains are doing, there is a lot of potential inflation down the road.

Becky: Hey Warren, we've been talking this morning about whether or not we're in a recession at this point. The last we talked with you was a couple of months ago, and you said it looked by any sort of relevant manner, if you're trying to measure this, by any sort of real estimate it looked like we're in a recession. But there are some people who are saying, yeah, it doesn't look like a recession to them. We've got GDP this week. Do you still stand by that idea that it looks like we're in a recession?

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Buffett: Yeah. I think we're in a recession. I mean, a recession is defined in a certain way by the National Bureau of Economic Research, but I think it's defined by the man in the street a little differently than whether there have been two quarters of reported (negative) GDP growth. And incidentally, when GDP growth is below 1% a year it's really falling on a per capita basis because our population increases about one percent. So even though the National Bureau uses an absolute figure, it's up one-tenth they don't count that as a recessionary quarter, but the GDP per capita has gone down in a quarter where the gain is half a percent or something of the sort. We are in a recession, unless you want to stick strictly to the technical definition, which I really don't think has much meaning to the fellow who has lost his job or is facing a money-market fund that isn't paying him out, or whatever it might be.

Steve Liesman: What does it say about credit markets that you guys are acting as a financier in this case, and is this a new role for Berkshire that you see yourself increasingly playing with the considerable cash on your books?

Buffett: Yeah, it's not a common role for us but it's something we have done before and we'll probably do again. I think in this particular case, we fit very well as a partner for what the Mars family wanted to achieve in this purchase. They needed somebody they felt comfortable with, they knew the check would clear, that wouldn't interfere in any real way. So we've done it differently than most people would have done it. We did it the way they wanted it done.

Michael Farr, CNBC Squawk Box Guest Host: Mr. Buffett, good morning, it's Michael Farr.

Buffett: Hi, Michael.

Farr: When you look at this deal, why now? The economy, if things are contracting and we've got rates where they are, why is this a good time for an acquisition? And do you have any integration concerns as Mars begins to take on this public company?

Buffett: Well, I think a good time to buy a really great business is when you can do it. Many, many years ago, as I remember, Herman Lay offered the Frito-Lay company to Coca-Cola. And he offered them the company first, as I understand it, and they decided for one reason or another they didn't want to do it then. And of course Pepsico bought it and it's the best thing they ever did. So if you get a chance to buy a wonderful business, then my advice is, grab it. As Yogi Berra would say, 'When you come to a fork in the road, take it."

Carl: Warren, it seems like it's been 72 hours or so since the bottom of the dollar has pretty much become conventional wisdom. Do you want to either join that camp or fight against the tide?

Buffett: I never have any idea what the foreign exchange or the stock market or the bond market is going to do in any given week or month or year. I do think over time, if we keep following the policies we've following on trade, the dollar will become weaker. But I'm talking about a ten-year period. And incidentally, let's make sure ... I think it's going to become worth less, over time. (Laughter.)

Becky: Not the 'worthless.'

Joe: That was going to be my question, whether you have a position right now and whether you're covering any of your shorts, at least short-term, in the dollar, Warren?

Buffett: Well, as I mentioned in the annual report, we only have one small direct foreign currency position, very small. But we have built up more earning power abroad through the ownership of businesses that earn a lot of money abroad. Some company like Coca-Cola earns a very high percentage of its money abroad. So we have an indirect position in currencies through earning power. We do not have any significant direct position, nor have we had for some time.

Carl: But the (Brazilian) real has treated you pretty well, hasn't it?

Buffett: It's interesting, the real has more than doubled in value over the past five or six years. Who thought you would get rich owning a South American currency?

Joe: You know when you answer the phone or you come on, you know we're going to keep talking until you pretend to do one of those commercials where it cuts out and your phone goes off. My next one, are you talking about policies...let's quickly talk - you're well-known to have helped the campaigns of both Senator Clinton and Senator Obama. This is going on and on and on. I tell you, I cannot pick who the nominee is going to be. I still think it's going to be Hillary Clinton.

Carl: If you were Warren, you wouldn't have had to.

Joe: You would have picked it both. Has it gotten to the point yet where it's hurting the chances for the Democrats do you think in November, Mr. Buffett?

Buffett: It can't help. I mean, some people are going to go away from this race with ill feelings. Whether the ill feelings translate into them staying home, I doubt if the ill feelings translate into them voting for McCain. But you want an enthusiastic electorate when you get to November and to the extent that people on either side feel that their candidate hasn't quite gotten a fair shot or been subject to too much mudslinging or something, that's a minus in the general campaign. I'm just sitting here unequivocally with a foot in both camps.

Carl: We remember when you came out in favor of both, and the question was to you at the time, 'Why aren't you choosing?' Did you have an inkling it was going to end up like this?

Buffett: No, I thought they were the two best candidates. And well before they declared, I promised each of them that I would support them, which a lot of people have gotten in trouble doing that in a romantic way and I've gotten in trouble doing it in a political way.

Becky: Back to what's happening with Wrigley. We had Sam Zell on about six weeks ago and asked him about Wrigley Stadium. He said, hey. it's been free all this time to have that name on the stadium but he wouldn’t mind charging for it. You’re a baseball fan. Would you pay up to keep Wrigley on Wrigley stadium?

Buffett: I've never been a big fan -- We've got a lot of propositions at Berkshire for sticking our name on sports stadiums. Based on the prices asked, I've never been a big fan of doing that. I did go to my first baseball game at Wrigley Stadium in 1939. But the Wrigley company sold their interest in the Cubs, which meant the stadium as well in 1981. So they really haven’t been involved there for a long time.

Carl: Dark days for those of us who used to live in Chicago.

Steve: The idea that you have two companies combining who are big users of inputs that are increasing in cost big-time right now, is that something we can expect to see? Is there something of an attempt to push back against the suppliers here. I've got to think corn syrup has to be one of the big costs of what Mars and Wrigley’s pay for these days.

Buffett: I don't think you have enormous power as a – commodity markets are bigger than any one company. So just like if you're going to be buying oil or something of the sort, you're going to pay the market price. The nice thing about it is your competitor is going to be paying the market price, as well. And, you, know, sugar is a big element and sugar hasn't moved. But I think, you know, whether it's Kraft or Kellogg, you name the company, they're going to be paying more for their raw materials.

Joe: You haven't bought a fertilizer company, I don’t think, have you Warren?

Buffett: No, I haven't.

Joe: Seed company?

Buffett: No.

Joe: And I know, you have a lot of utilities. And you had a big Petrochina investment in China. You sold out. Should we read into that, that maybe you're not as active in that area as the situation seems to dictate at this point? Are we getting toppy? That’s the question I’m trying to ask you. I guess nobody knows. But is it crazy right now in commodities or is this the state of the world?

Buffett: Well, who knows on that? But I don't play sectors, Joe. When I -- the thing that makes my job fun is when I go to work in the morning, I don't really know what's going to happen. So, two months ago, I didn't have the faintest idea I would be investing 6-1/2 billion of Berkshire’s money in this particular transaction. You know, and then the phone rings. I love it when the phone rings. Usually it's the wrong number but every now and then something happens.

Becky: Although Warren, you have played some sectors in the past, with the transports playing on the rails, and other areas. You have not made broad commodities plays. Is there a reason for that?

Buffett: Well, it’s probably because I don’t know what commodities are going to do. The thing about commodities, if I knew what commodities were going to do, I wouldn’t have to play them through stocks. I could just go on the commodity market and do it. So, I, I don’t know what oil or wheat or soybeans or cocoa or anything like that’s going to be selling for next week or next month or next year. I do know people are going to be chewing Wrigley gum and eating Mars bars.

Carl: You know, last week was Earth Day. You missed it, Joe, and we had a big …

Joe: I was around on the planet for that day, but I missed your coverage.

Carl: But one of the things that Abby Joseph Cohen from Goldman said, Warren, is she's seen more VC money go into green initiatives than pretty much anything else. Does that hold any interest for you?

Buffett: Well, what holds an interest for me is a business I can understand and one that's got durable long-term competitive advantage and the good management and the price makes sense. If I can find that any place, I’ll do it. And a lot of times, things are just beyond my competence. Somebody can have a wonderful idea that I don't understand and God bless them. I'll stick with stuff I understand.

Joe: Have you ever looked at Hershey, Warren? Ever gotten close to anything because it's a family trust there. Do you think something happens there now?

Buffett: Well, I followed that for a long time. When I was 13 years old and living in Washington, D.C., I ran away to Hershey, Pennsylvania, and got picked up by the state police. So I've done a little in-depth research on Hershey that way. (Laughs). But you know, it's been very interesting to follow the Hershey trust story.

Joe: You have looked at buying Hershey?

Buffett: No, not really, not really.

Joe: Not really.

Carl: But you really did run away from home?

Buffett: That I did, right. But I only got about 100 miles.

Carl: That's pretty good.

Becky: Warren, if you took a look at all of your businesses, because you have a lot of consumer-driven businesses and took a look at all of that, how have things changed over the last couple months or have they?

Buffett: I would say that in the retail businesses, we're in jewelry, in furniture, that sort of thing, I would say that if anything, they've gotten a little worse. And, of course, the things connected with housing, whether it's in brick or whether it's in carpet, those businesses have shown no uptick at all. And jewelry had a bad Christmas. Everyplace, including places like Wal-Mart and Costco, and it stayed that way. So I think -- I think consumers are feeling gas and food prices and not feeling they’ve got a lot of money for other things.

Carl: You know, the bulls of course, Warren, as you know, are going to point to the stimulus checks that are going to go out today, starting today. They’re looking at some of the housing starts for the past couple months and saying at least we're working our way toward selling more homes than we're building. Do you take solace in any of those two things?

Buffett: Well, that's what you have to do. And it’s going to have to go for sometime to get rid of the overhang. We do form, you know, whatever it is, a million households every year in this country. And as long as they don't build a million housing units, we'll eat away to some extent at the surplus. But the problems were very -- I mean the bubble in housing was huge. There was, in 2006, there was $330 billion of cash out, mortgages just in the primaries. So that was a lot of stimulus in 2006 just from people taking equity out of their homes. I think this is going to be fairly long and fairly deep but who knows?

Michael Farr, CNBC Squawk Box Guest Host: Mr. Buffett, it's Michael Farr again. We're hearing from traders on the street and other strategists that perhaps we've seen the worst and we’ve seen the bottom and that we're going to have this shallow recession and it's going to be over with quickly. You've said we're in recession. Do you think this is going to be, sort of, one of these short rebounds? Can we start buying now?

Buffett: Well, I don't know about the stock market in terms of what it will do. My general feeling, and this is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think. But what the stock market, the stock market often does not behave in sync with what's going on in business. So, I wouldn't want to predict what the stock market might do. My feeling from what I see in the economy is that this will not be short and shallow.

Becky: All right. Warren, want to thank you again for joining us this morning. Warren Buffett again with the news on Berkshire Hathaway and Mars teaming up to close a deal to acquire Wrigley. And Warren, thank you very much for coming on today.

Buffett: Thank you, and I’ll get back to chewing my gum and eating candy.

Becky: Is there a favorite you have with Wrigley?

Buffett: Yeah, I’m an old-timer. I like spearmint and Juicy Fruit.

Joe: You look at Mars, too. Snickers.

Buffett: Snickers, yeah, I love the new Dove bar and I’ve even gotten into Skittles lately.

Joe: You have?

Becky: Those are my favorite.

Carl: I love Skittles, too.

Joe: You guys are young, but you know, my fillings. They pull my fillings out, Warren.

Buffett: That's okay. Just buy an interest in a dentist firm.

Becky: Thanks, Warren.

Current Berkshire price:

Berkshire Hathaway Inc

128340.0 1465.00 +1.15%

[US;BRK.A 128340.0 1465.00 (+1.15%) ]

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WSJ BLOG: A Sweet Deal for Warren Buffett

Warren Buffett is getting plenty of plaudits this morning for teaming up with Mars to buy Wm. Wrigley Jr. for $23 billion. (Not entirely surprising. He is, after all, the “Oracle of Omaha and has a pretty good track record.)

The’s FT Alphaville blog writes that Wrigley would seem to fit the classic value investor theory–a strong brand, with a strong market share, “but which happens to be out of fashion and available at less than their intrinsic value.”

So what does this deal have in common with a certain consumer product deal three years ago? A lot, according to Bob Reed over at Reed Biz. Reed writes that while we see a couple of candy companies getting together, “Warren Buffett sees a replay of the Procter & Gamble and Gillette merger.”

In both deals the products were complimentary. P&G didn’t have a razor business. Mars’ focus is on chocolate, while Wrigley mostly makes gum. Perhaps more importantly, both deals strengthen the combined firm’s international distribution network, Reed points out.

For Wrigley investors, the $80-a-share offer marks a healthy 28% premium over Friday’s close, and as Crossing Wall Street points out: “Twenty-five years ago, shares of WWY were going for about $1. That’s a nice 80-fold return in 25 years, and that doesn’t include a consistently rising dividend. Given Wrigley’s business, it’s probably no surprise that Berkshire Hathaway will be in the deal, providing financing for the purchase.”

Meanwhile, over at, Michelle Leder wonders “what role a string of increasingly testy comment letters between [Wrigley] and the SEC had in pushing Wrigley to go private.”

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Monday, April 28, 2008

THISISMONEY.CO.UK: Pressure on Cadbury as Buffett eyes Wrigley

Warren Buffett and Mars are poised to take over chewing gum giant Wrigley in an £11bn deal that has profound implications for UK chocolate business Cadbury Schweppes.

Warren Buffett

Chewing it over: Buffett would provide some of the financing for Mars to take over Wrigley and become a shareholder himself.


The deal that sees the world's richest man and the iconic maker of Snickers bars link-up could be unveiled today, and will have managers at Cadbury scurrying for details.l

Cadbury bought American chewing gum maker Adams in 2003 for £2.7bn and has been pushing its Trident brand in the UK in an attempt to break the stranglehold Wrigley has on the market.

Wrigley, a family dynasty just like Mars, has more than 35% of the gum market in the UK, with Cadbury second at 25%.

The arrival of new Wrigley owners with such deep pockets could spark more corporate activity at Cadbury, which is in the process of splitting off its beverages arm.

Analysts say it could now look to merge with US chocolate maker Hershey in response, a deal that was discussed as recently as a year ago.

Buffett has long admired both Mars and Wrigley, businesses he regards as powerful brands with a staying power to match Gillette or Coca-Cola.

Although the terms of the deal are not yet public, it is expected Buffett will provide part of the financing for Mars, becoming a shareholder in the new business.

Buffett is clearly prepared to pay a significant premium to get his hands on the company - Wrigley has a stock market value of £8.5bn. He recently eclipsed Bill Gates as the richest man in the world with a personal fortune put at $62bn by Forbes magazine.

Mars is an intensely private company founded in Virginia. Company patriarch Forrest Mars died in 1999 at the age of 95, prompting speculation it could be sold to Nestlé.

Wrigley is a Chicago-based firm that has been selling gum since 1893. Its brands include Juicy Fruit and Freshmint. Cadbury became convinced a few years ago that it could take on Wrigley, pushing chewing gum's status as a health food that can be good for teeth. Despite its efforts, gum sales in the UK have been falling, a development Cadbury sees as an opportunity given Wrigely's dominance of the market.

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