Monday, May 26, 2008

'Hubba Bubba' to Mars - Wrigley Company Deal

The all-cash $80.00 a share offer by Mars Inc to buy The Wm Wrigley Company is a sweet deal for insiders and stockholders, collectively, according to separate valuations performed by investment bankers Goldman Sachs and William Blair found in the preliminary proxy statement filed by the chewing gum maker on May 25.

Goldman Sachs performed transaction-multiples analyses based on financial estimates provided by management of Wrigley for 2007 and 2008. At the $80.00 offer price, the shares fetched 32.1 times and 22.5 times FY 2008 EPS and trailing twelve-month enterprise value/EBIT, respectively. Premiums to the forward P/E Multiple 2008E of 13.4x – 20.6x and Enterprise value/EBIT of 8.1x – 19.5x ranges, respectively, for publicly traded companies in the food and confectionery industry.

William Blair utilized information included in the forecasts provided by management to perform a
discounted cash flow analysis of projected future cash flows for the period commencing March 31, 2008, and ending December 31, 2012. The equity value per share implied by the analysis ranged from $62.18 per share to $86.66 per share, as compared to the merger consideration of $80.00 a share.

Pursuant to the merger agreement, the resulting pecuniary rewards are even sweeter for Named Executive Officers. Executive Chairman William Wrigley Jr and CEO William D Perez will receive—assuming continued employment through the effective time of the merger—cash considerations of $55.2 million and $35.9 million, respectively, for the cancellation of their outstanding options, long-term stock grants, and restricted stock unit awards.

The candy was in the wrapper for this deal erewhile. Mars agreed to a high reverse termination fee of $1.0 billion. And, with investment banks walking away from similarly structured commitments—think fleet management provider PHH and packaged ice maker Reddy Ice Holdings—Mars had little problem
attracting debt financing from Berkshire Hathaway, Goldman Sachs, and JP Morgan Chase.

Editor David J. Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

No comments: