Wrigley to buy confectionary brands from Kraft for €1.14bn

Wrigley, the world's largest chewing gum maker, yesterday took a significant step towards diversifying into other confectionery products by buying Kraft Foods' sugar confectionery business for $1.48 billion (€1.14 billion) cash.

The purchase includes Kraft's Altoids breath-freshening mints, Life Savers, Creme Savers and the Trolli and Sugus brands, which together account for 1.5 per cent of its global revenues.

The deal allows Wrigley, which has an extensive global distribution network, to sell Altoids and other products outside its current North American and European markets, including Asia.

Mr Chris Perille, Wrigley spokesman, said: "One of the things we'll look at when this deal comes to completion is different transplant opportunities to sell some of these brands where they are not currently distributed."

In Asia, that would mean Indonesia and Thailand, where the Sugus and Trolli brands are sold. Asia accounts for 13 per cent of Wrigley's total revenues but is the company's fastest-growing region.

Before the deal, Chicago-based Wrigley had only a 7.8 per cent market share of the US confectionery market, according to Credit Suisse First Boston.

Wrigley had been working on identifying alternative acquisitions that would help it expand in confectionery since the collapse in 2002 of a deal to buy Hershey, the chocolate maker, for $12.8 billion.

For Kraft, the disposal fits with the strategy of chief executive Mr Roger Deromedi to trim the number of brands and focus on its food business.

International food companies have been selling smaller brands to refocus on bigger household names. These enable them to resist the powerful supermarket chains and discount retailers, who exert downward pressure on prices.

At the time of the proposed Hershey deal, analysts were concerned that Wrigley was overpaying for the business.

Of the Kraft deal, Mr Leonard Teitelbaum, food and confectionery analyst at Merrill Lynch, said that at 12 times earnings before interest, depreciation and amortisation [ EBITDA], the price seemed high.

However, he added that "Wrigley has been able to produce 25 per cent EBITDA margins and we feel that, within one year of acquisition, we could at least see this number from Altoids and Life Savers".

Wrigley's purchase also strengthens its position against its rival Cadbury, which last year bought gum maker Adams.