Wrigley buys Kraft confectionery brands

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Related tags: Wm. wrigley jr. company, Confectionery, Kraft foods, Bill wrigley

Rumours that Kraft Foods was mulling the sale of its sugar
confectionery business have been circulating for a month or so, and
were this week proved to be correct when gum maker Wrigley
confirmed that it would be buying the Altoids, Life Savers and
other sugar confectionery brands for $1.48 billion.

Kraft is the biggest food manufacturer in the US but has struggled to generate value from every part of its sprawling product portfolio, with confectionery and snacks in particular under pressure from an increasingly diet-conscious US market.

If the sale of the brands comes as no surprise, then neither does the choice of buyer. Altoids and Life Savers are predominantly US-focused brands, and international confectionery groups such as Cadbury or Nestlé were always thought unlikely bidders. Furthermore, US groups such Hershey or Mars were perhaps too chocolate-focused to be interested in sugar confectionery brands, while other sugar-focused players were unlikely to be afford the $1 billion price tag attached to the unit.

The Kraft brands are, in fact, a good fit with Wrigley's business, not least because the gum maker is increasingly keen to expand beyond its traditional market niches into mints and other sugar confectionery products.

"There are only a handful of confectionery brands around the world that have the combination of heritage and vitality that can match up with Wrigley brands,"​ said Bill Wrigley, Jr., chairman, president & CEO of the family group. "Altoids and Life Savers are two such brands.

"We are extremely pleased to add them to our fast-growing and dynamic portfolio of leading confections and are committed to leveraging their equity to create significant value for our business and our shareholders. With our confectionery focus and expertise, we look for these brands to flourish under the Wrigley umbrella and anticipate being able to take full advantage of their marketplace potential."

The deal also includes a number of strong local brands, such as Sugus and Trolli sold in markets as diverse as Portugal, Romania, Spain, Indonesia and Thailand, as well as two manufacturing facilities in the US, one in the UK and one in Romania.

The purchase price of $1.48 billion will be offset in part by around $300 million in cash tax benefits, leaving a net takeover cost of $1.18 billion, some 2.4 times the businesses' estimated 2004 sales.

Approximately 700 Kraft employees in the sugar confectionery business, most in manufacturing positions, are expected to transfer to Wrigley as part of the sale. Kraft will continue to provide certain sales, logistics, manufacturing, and other support services during a transitional period.

The acquisition was described by Wrigley's COO Ron Waters as "the next step in more fully leveraging our robust sales, marketing and innovation infrastructure to become a broader-based confectionery company and to weave our brands even deeper into the fabric of everyday life around the world,"​, an indication that the company could seek further acquisitions in coming months.

Certainly, Wrigley has moved to expand beyond the borders of the gum market in recent years, rolling out mint and hard candy extensions of popular gum brands such as Eclipse, and making no secret of its interest in compatriot Hershey back in 2002 when that business looked likely to be sold. The recent acquisition of Spain's Joyco business certainly strengthened its position in the gum sector, but it also gave Wrigley control over a number of best-selling candy brands such as Pim Pom and Solano.

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