Warren Buffett took advantage of the credit crunch yesterday as Mars announced an agreed $23 billion (£11.5 billion) takeover of Wrigley in a deal that the world’s richest man helped to finance in return for a cut-price stake in the chewing gum group.

Mr Buffett’s Berkshire Hathaway investment vehicle, which has $40 billion of cash to spend at a time when deal financing has largely dried up, has contributed $4.4 billion of the funds Mars needed to purchase the world’s biggest chewing gum company.

In return, Mr Buffett, who is already profiting from bond insurers’ woes after setting up a rival securities underwriter to take new business away from the cash-strapped traditional players, will acquire a 19 per cent stake in Wrigley for a discounted $2.1 billion.

Bill Wrigley Jr, the chairman and chief executive of Wrigley and the founder’s great-grandson, said that he had invited Mr Buffett into the deal for his “wisdom, experience and endorsement”, but conceded that the billionaire was also there because of his deep pockets.

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Background

• The men from Mars

• Meet the Wrigleys

• Bill Wrigley on the deal

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Background

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• Buffett tells investors ‘the party is over’

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“There’s no question that the financial markets are very challenging right now and coming up with the financing was a challenge,” Mr Wrigley said.

As part of the deal, JPMorgan is lending $11.5 billion to Mars and Goldman Sachs, which is advising Wrigley, is lending the remaining $5.7 billion.

Assuming that shareholders approve the deal, the merged group would overtake Cadbury Schweppes as the world’s biggest confectionery company, giving it 14.4 per cent of the global market, against Cadbury’s 10.1 per cent.

The combined entity, in which Wrigley would operate as an independent business, would have annual sales of $27 billion. It would include Wrigley brands such as Juicy Fruit, Orbit and Hubba Bubba, together with Mars products such as Milky Way, Snickers, M&M’s, Uncle Ben’s Rice and the Pedigree and Whiskas pet-food brands. Mars will move its sugar confectionery brands, such as Skittles and Starburst, into Wrigley, allowing it to focus on chocolate.

Investors are not expecting a rival bid to emerge for Wrigley because Mars’s $80-a-share cash offer is 28 per cent higher than the gum maker’s closing share price on Friday. However, the deal has increased speculation that Hershey and Cadbury Schweppes could merge to compete with Mars/ Wrigley’s increased clout. The two parties discussed a tie-up last year, but those talks came to nothing.

Mr Buffett, who unseated Bill Gates last month as the world’s richest man with an estimated fortune of $62 billion, also owns big stakes in Tesco, Coca-Cola, Kraft Foods, Johnson & Johnson and the Washington Post.

Josh Lerner, Professor of Investment Banking at Harvard Business School, said: “This is classic Warren Buffett, taking advantage of the situation.”

Yesterday Mr Buffett forecast that the recession would be longer and deeper than many expected and added: “There’s really nothing that can go wrong with some things like the Wrigley and Mars brands. People are eating more and more of their products every day.”

Shares in Cadbury closed up 2.75 per cent at 579p in London.

Sticking together

$27.4bn
Combined annual sales ($22bn from Mars)

73,000
Number of employees (15,000 from Wrigley)

Terms of the deal

— Mars acquisition of Wrigley values the chewing gum group at $23bn

— Will pay $80 per share in cash

— Deal backed by Berkshire Hathaway (which will take minority stake), Goldman Sachs and JP Morgan

Brands the deal will unite

Wrigley

Juicyfruit
Spearmint
Doublemint
Extra
Orbit
Hubba Bubba
Altoids
Airwaves
Life Savers
Freedent
Eclipse

Mars

Mars bar
Starburst
Snickers
Twix
M&M
Skittles
Uncle Ben’s rice
Sheba (cat food)
Whiskas Cesar (dogfood)
Pedigree Chum

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