Wrigley to buy Kraft’s candy brands for $1.48 billion

Chris Burritt

Monday, Nov. 15, 2004 | 9:18 a.m.

Wm. Wrigley Jr. Co., the world's largest gum maker, agreed to buy brands including Altoids mints and Life Savers for $1.48 billion from Kraft Foods Inc., its biggest acquisition ever.

The purchase is expected to hurt income in the first year and boost it in subsequent years, Chicago-based Wrigley said. About $300 million in tax benefits will lower the acquisition cost to $1.18 billion, or 2.4 times estimated 2004 sales.

Chief Executive William Wrigley Jr. is expanding beyond gum to compete with Hershey Foods Corp., which it tried to buy in 2002. Kraft is selling candy brands to focus on its most profitable businesses as parent Altria Group Inc. considers spinning off the No. 1 U.S. foodmaker as a separate company.

"The acquisition makes strategic sense to grow impulsive, front-of-the-store sales," said Daniel Popowics, who helps manage $30 billion at Cincinnati-based Fifth Third Bancorp, including about 93,000 Wrigley shares at the end of June. "Clearly Kraft wants to simplify and focus its business."

The sale of brands to Wrigley including Sugus and Trolli fruit chews and mints represents most of Kraft's sugar confectionary business, the Northfield, Ill.-based company said in a statement. Kraft's confectionary sales suffered a double-digit decline in the third quarter, reflecting consumers' switch to diets that shun sugars and other carbohydrates, company spokesman Mark Magnesen told investors Oct. 18.

Altria, owner of the world's biggest tobacco maker, may divide into two or three units to boost its share price, Chief Executive Louis Camilleri told investors Nov. 4. Kraft's lower profit has hurt Altria, which owns about 85 percent of Kraft.

Shares of Wrigley rose 28 cents to $67.64 at 10:11 a.m. in New York Stock Exchange composite trading. Before today they had gained 20 percent this year. Of eight analysts tracked by Bloomberg, 5 rate the shares "buy" and 3 say "hold."

Shares of Kraft, which also makes Oreo cookies and Ritz crackers, fell 10 cents to $34.78. Before today the shares had climbed 7.9 percent. Of 17 analysts tracked by Bloomberg, 5 rate the stock "buy," 11 have a "hold" and 1 says "sell."

Wrigley, the 113-year-old maker of Juicy Fruit and Orbit, in April bought Joyco Group's candy business, which gave the company the largest share of bubble gum and lollipop sales in China and India.

Wrigley on Oct. 26 said third-quarter profit rose 11 percent as sales jumped 17 percent, boosted by Joyco's candy business. The company has a 7.8 percent share of the U.S. confectionery market, according to Credit Suisse.

Altoids were created by a 19th-century confectionery firm to combat intestinal discomfort, according to the company's Web site. The brand is now sold as gum, breath strips and candies.

Life Savers candies were created in 1912 as an alternative to chocolate because they wouldn't melt in the summer sun. The candies won their name because they looked like miniature life preservers.

Kraft is considering divestitures to focus on its most profitable brands with greatest potential to be among the largest in their categories, Chief Executive Roger Deromedi told investors at a Prudential Equity Group conference in September.

Kraft would benefit as a separate company because its shares have been dragged down by the "perceived tobacco taint" of Altria's ownership of Philip Morris USA and Philip Morris International, Harris Nesbitt analyst Kenneth Zaslow wrote in a report. The New York-based analyst rates Kraft as an "outperform."