LEX Saddam Hussein was discovered with a Mars bar, among other things, when captured in his underground hideout in late 2003. If confectionery maker Mars had inked its $23bn deal to buy gum maker Wrigley earlier, perhaps it could have convinced him to snag a pack of Juicy Fruit as well.
The confectionery market has long been ripe for consolidation. Mars’ move – following Campbell’s recent sale of Godiva – is likely to heat up talks over strategic combinations between Nestlé, Kraft, Hershey, Cadbury and smaller Lindt. Pepsi and Coca-Cola may even take the opportunity to weigh whether they might want to expand into confectionery. But the deal will weigh the heaviest, at least in the near term, on Cadbury and Hershey, the companies under the most pressure to improve their performance. The combined Mars and Wrigley will now usurp Cadbury as the world’s biggest confectionery company.
Struggling Hershey has held several rounds of unsuccessful merger talks in recent years with suitors including Cadbury and Wrigley. If there was ever a time for Hershey to capitulate, now might be as good as any. Rick Lenny, the former chief executive who opted against earlier deals, has left the company. And the chief executive of Hershey’s controlling trust has also announced plans to retire, leaving the trust’s intent for the company even more murky.
The trust has made no indication thus far that it is willing to relax its grip on its 78 per cent controlling interest. While the shares have plunged – a boon for potential buyers – a big premium would probably be needed to win control.
Mars struck first after finding a willing partner in Warren Buffett. The move was costly as Mars let Mr Buffett buy in at a lower premium to get the deal done. But the hit to Mars’ rivals may be even steeper.
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