Mars Buys Out Buffett Preferred Stake That Paid 5% Dividendby and
Candy maker simplifies ownership to unify chocolate, gum units
Buffett helped finance Mars’s 2008 deal to acquire Wrigley
Mars Inc. is buying out the $2.1 billion preferred stake that Warren Buffett held in its Wrigley chewing gum business as the candy company seeks to simplify its ownership and reduce interest expenses.
The repurchase accelerates Mars’s exit from securities on which it had to pay a 5 percent annual dividend to Buffett’s Berkshire Hathaway Inc. The closely held candy maker was allowed to start redeeming half the stake this month, Berkshire said in a filing in August. Mars instead struck a deal for an “early buyout,” the company said in a statement Thursday that didn’t disclose terms.
Buffett helped Mars buy the chewing gum company in 2008 and got the preferred securities along with $4.4 billion in bonds paying 11.45 percent a year. The maker of M&M’s retired that debt in 2013. Mars, which is the largest candy company in the U.S. and also has offerings including pet food, said that exiting Buffett’s Wrigley investment makes it easier to combine its chocolate and gum units.
“We are grateful for the strong and productive partnership we have with Warren Buffett,” Mars Chief Executive Officer Grant Reid said in the statement. “Sole ownership of Wrigley provides us with an opportunity to rethink how we simplify our chocolate and Wrigley businesses.”
Buffett has long been a provider of financing to companies looking for quick access to large sums of cash, and Omaha, Nebraska-based Berkshire often commands above-market rates on the deals. Goldman Sachs Group Inc., General Electric Co. and Kraft Heinz Co. are among companies that have repaid Berkshire in recent years, lowering their cost of capital.
The expiration of the deals adds to Berkshire’s cash pile, which was more than $72 billion as of June 30. Buffett earns almost nothing on those funds and has said he prefers to put money to use in acquisitions.
Shares of Buffett’s company slipped 0.2 percent to $215,860 at 4 p.m. in New York. That narrowed the gain this year to 9.1 percent.
For Wrigley, “the 100 percent ownership by Mars is credit positive because it eliminates the need for the $105 million per year payment to service the preferred dividend to Berkshire," Linda Montag, a senior vice president at Moody’s Investors Service, said in a note Thursday. Plus, she wrote, the combination with the chocolate operation “opens the door to possible synergies as well as expansion of the cash flow of the business.”
Mars generates annual revenue of about $35 billion, a figure that includes sales at Wrigley, according to Moody’s.