Mars-Wrigley? Buffett's Sweet Deal

We see a couple of candy companies getting together. Billionaire Warren Buffett sees a replay of the Procter & Gamble and Gillette merger. Allow me to explain.
In 2005, uber-investor Buffett was a big fan of the $57-billion merger of consumer giant P&G and razor blade maker Gillette. He should have been: His investment vehicle Berkshire Hathaway was a major Gillette shareholder and made an estimated $600 million on the day the P&G-Gillette deal was announced. Buffett's firm is now a major P&G shareholder.
While not an exact replica, the Mars-Wrigley deal has many of the same characteristics of the P&G-Gillette marriage.
First and foremost, P&G bought Gillette mainly because it did not have a razor blade business. More than that, Gillette gave P&G inroads into a broader worldwide distribution system, one with a growing presence in Latin America, Europe and the Far East.
Buying Gillette cost P&G a pretty penny but that was cheaper than building its own line of razors and blades--not to mention less expensive than constructing a bigger international distribution network.
Indeed, the purchase price, product synergies and global potential of the bigger distribution network were the major reasons why Buffett described P&G and Gillette's hook-up as a "dream" deal. On top of all this, P&G shares have had an impressive post-merger ride and the maker of Crest, Tide and other household products is considered one of the best run companies in the world--maybe even a growth stock.
One more thing: Unlike many hot-to-trot investors,such as hedge fund manager Edward Lampert, Buffett invests in the management of the companies he backs. Rarely does he come in and clean house.
Back to $23-billion Mars-Wrigley deal.
First and foremost, these two companies' brand lines are complimentary. Mars markets mostly chocolate products (Snickers, Milky Way and my personal favorite 3 Musketeers), while Wrigley hawks gum (Juicy Fruit, Doublemint) and the recently acquired Altoids brand.
Moreover, Mars is in 100 countries while Wrigley has a growing international distribution system. This newly-formed company will be much better poised to take on overseas competitors Cadbury Schweppes (and U.S.-based Hershey Co. if it ever gets its act together).
And while Buffett doesn't have stock in Mars as he did Gillette, the Oracle of Omaha is getting the next best thing.
The billionaire is backing Mars' management's play by putting down some loose change to help finance the Wrigley acquisition. He wouldn't do that if he didn't approve of those running both companies.
Moreover, Buffett's debt will eventually be converted to shares in a newly-configured Mars, which will still be privately-held. At 77 years old, Buffett is still one of the world's most patient investors. So, don't rule out Mars going public one day, enabling Buffett to reap yet another huge payday.
For Mars and Wrigley, there's no better stamp of approval than Warren Buffett.
He did great when P&G bought Gillette. He may do even better with this sweet deal.

(Illustration compliments of Businessweek)

Free Enterprise? Buffett Counts On Bailout

Throughout this ongoing economic crisis, the hardcore anti-bailout crowd crows that everything can be fixed if we just act more like multi-billionaire Warren Buffett.
Apparently, Buffett sees gold where others envision only muck. So, the "Oracle of Omaha" is digging deep--but not too deep, mind you--to acquire ownership stakes in a couple of venerable but wobbly institutions, namely GE and Goldman Sachs.
Some view his buying spree as proof-positive that there's gobs of hearty, private investors out there ready to buy, buy, buy into these sagging financial institutions. Just hang tight, they argue on CNBC and other outlets, because the private investor cavalry will save the day, allowing taxpayers to hang onto the $700 billion required to get the federal economic bailout (sorry, rescue plan) up and running.
I wish that were true. But it isn't.
In fact, the shrewd yet homespun Buffett is probably counting on the bailout more than most of us.
By investing at least $5 billion in Goldman Sachs, Buffett is betting a bailout will become law and that the U.S. Treasury will get moving and buy much of the toxic commercial paper on the books of Goldman and many other financial institutions.
Free of such nasty and corrosive investments, Goldman's balance sheet should quickly perk up. With Buffett's backing, Goldman is free to pursue its new strategy of being a bank holding company, while continuing to sell fee-generating investment banking services.
Same goes for GE.
Buffett expects the bailout to ease the lending burdens of GE's financial unit.It will also alleviate much of the credit crunch, which should free up financing that will make it easier for GE's customers to purchase its goods and services.
Don't kid yourself, Buffett knows the score. That's why he favors a bailout!
Believe me, without the distinct possibility of a taxpayer rescue, Buffett doesn't go anywhere near Goldman, GE or anything else. Remember, before a bailout plan surfaced he stopped one of his insurance firm's subsidiaries from insuring bank deposits above the amount guaranteed by the federal government.
And keep in mind that Buffett is only the best-known of a small band of wealthy investors plunking down cash and waiting for bailout relief. Scores of other well-heeled interests are making the same play.
But those who argue that private investment alone is enough to fix this mess can't see past their ideology.
Nope, private investors are buying some well-known brand names--JP Morgan Chase and Morgan Stanley for starters--in anticipation of a government-led bailout, not because of some ardent belief in the Free Enterprise system.
This is a painful time and we need public and private capital to save the economy from ruin.
But let's be honest: Warren Buffett can't do it all by himself.

Buffett Says "Last Call" For Bud Brewer

Super-investor Warren Buffett wants the King of Beers to abdicate.
Anheuser-Busch Cos., which brews Budweiser, Bud Light and a slew of other beers, will soon be acquired, most likely by Belgium-based InBev NV. When that happens, the A-B beers will be absorbed into InBev's stable of nearly 200 different brands, including Bass.
After the purchase, InBev intends to cut over $1 billion in costs, so the next sound you hear will be the Budweiser Clydesdales clomping off into history along with a crush of U.S.-based jobs.
St. Louis-based A-B's management, headed by the long entrenched Busch family, is trying to thwart InBev's hostile $46 billion takeover offer. Nonetheless, the wealthy Buffett, a major
A-B shareholder, has other ideas. He's reportedly advised A-B management to take the InBev offer, which is pouring out a frothy premium over A-B's current stock price.
The Oracle of Omaha hails from Middle America but he also firmly believes that money has no boundaries. By selling his A-B stake to InBev, Buffett's investment vehicle Berkshire Hathaway stands to make a cool$600 million profit, according to Bloomberg Business News.Having Buffett on your team is a double-edge sword.When he's on board, no one is a better ally. For example, his backing helped smooth some difficult management problems at The Coca-Cola Co. (Buffett loves to buy brand names!). But when Buffett thinks the time is ripe to sell, sentiment doesn't get in the way.
That's how you know that A-B is cooked, despite the growing union and political objections to an InBev sale.
A-B management is trying to carve out a friendlier deal with a Mexico-based brewer but it's probably too late for that approach.
Warren Buffett has made his call. This Bud is sold.

Hang On! Economy Hasn't Hit Bottom Yet

Summertime and the cost of living ain't that easy. Not this year, at least.
We're at 2008's halfway mark and indications are the economy is tumbling with no sign of hitting a bottom. Some economic optimists say we'll start to bounce back in the third or fourth quarter. Don't count on it.
Perhaps 2009. Perhaps.
We all know the problems.
Home values are declining and foreclosures are rising, business and mortgage credit is tightening (although the credit card companies keep sending out those "You've been pre-approved" credit card applications to consumers), and household debt is piling up. Did I fail to mention the escalating price of gas and food?
What's more, greater unemployment is just around the corner. Recently, the Business Roundtable's CEO Outlook panel predicted a 6.5 percent unemployment rate by mid-2009. Right now, we're at 5.5 percent--so that's a significant increase at the unemployment line.
While everyday working people are scared, Wall Street types are in a near panic.
Trading floors have always been rumor mills, but lately they've really been buzzing with recurring tales of insolvencies, recapitalisation and bargain-basement buyouts of major investment houses.
This week, all eyes are on Lehman Brothers, which is rumored to be on the selling block and running out of money--something the firm denies. Keep in mind,however, that Bear Stearns said pretty much the same thing before it was swallowed whole by JP Morgan Chase (with an assist from the Federal Reserve).
We'll see.
Frankly, I don't mind if some greedy and crafty Wall Street players get their comeuppance. But Wall Street's missteps always have a way of tripping up Main Street and injuring innocent bystanders, so expect some major fallout if an investment firm bites the dust.
On CNBC, many so-called economic experts debate whether we're really in a recession.
Technically, it may not be a recession.
But you know what? It sure feels like one.


Clay Felker: An Editor With Style. More years back than I care to remember, I had my one and only dinner with famed editor Clay Felker. Throughout the meal, Felker told a string of fascinating stories about the New York media scene in the 1960s and 70s--his heyday for editing some of the world's best magazines.
We dined at the Mansion on Turtle Creek in Dallas. Felker, who was then running Adweek magazine, was talking to me about a position in its Chicago bureau. After eating, we took a stroll around the swanky neighborhood with Felker puffing on a cigar and ruminating on the state of journalism, politics and anything else he wanted.
A week or so later, I had a follow-up phone conversation with him and expressed some reservations about the job. Felker screamed at me and slammed down the phone. (I later learned that he was notorious for such fast and furious responses).
So, I never worked for him. But wish I had.
My wife, however, did work for Felker and, upon hearing of his death, remembered him as an editor with an unmatched sense of journalistic style. As usual, she's right.


Banking on Buffett. One fellow who is prospering in these uncertain times is ultra-wealthy investor Warren Buffett.
This blog has occasionally chronicled Buffett's shrewd investments and his ample marketplace clout.
To learn more about Buffett, pick up the latest issue of Bloomberg Markets and read it's excellent cover story, "Why Buffett is Buying."


Happy Fourth of July! Check out a fireworks display, unfurl the flag, go to a parade or rent a copy of "Yankee Doodle Dandy" with the late, great James Cagney as George M. Cohan.
Whatever you end up doing, put aside your concerns for a moment to ponder what a great country this is and how we can make it even better.
Have a terrific Fourth.
Cheers!



(Economy graphic courtesy of Stone Soup Station via Google Images)

Eddie Lampert Set To Bust-Up Sears

Sears Holdings Corp.'s days are numbered. How much time the parent company of retailing chains Sears and Kmart has is undetermined--for now anyway. But it's pretty clear that Edward Lampert, the stressed-out Sears investor and hedge fund manager, is dressing up the company for a partial or outright asset sale.
Why else would he reorganize Sears into five stand-alone units--operating businesses, support businesses, brands, online and real estate?
Such a strategy has virtually no operational or managerial basis, especially for a troubled retailer that's going shopping for a new CEO to replace Aylwin Lewis, who today announced he's leaving Sears.
The new approach does, however, enable Lampert to more effectively showcase each business operation for potential buyers.
Nobody wants to buy all of Hoffman-Estates-based Sears Holdings, but outside investors and companies may be enticed to acquire a piece of the action, provided these units have the potential to become stand-alone companies or can be seamlessly integrated into a larger firm's structure.
Who knows? Maybe some retail rival will acquire Sears' online properties or brands, while commercial real estate players make a run at Sears' massive property holdings?
Not that long ago, investors lined up to buy Sears stock, often on a hunch that the company's break-up value was greater than the whole. Many of them have lost money waiting for the Lampert bust-up to get underway.
Here's betting they won't have to wait much longer.
Admirers once called Lampert the second Warren Buffett. Soon, they'll label him Lampert the Liquidator.

Paging George Bailey, You Have A Call

Most of us have never witnessed an actual run on a bank, where nervous depositors crash a teller's window demanding their money. Our closest view comes from the classic film, "It's a Wonderful Life", and the scene when customers swarm the Bailey Building & Loan. George Bailey, played by Jimmy Stewart, steps up to calm everyone down.
In the coming weeks, we'll need that type of Bailey-like resolve as the country sorts through the worse U.S. banking crisis since the Great Depression.
That's not an overstatement. Just consider what's going on.
The feds have taken over insolvent Pasadena, California-based IndyMac bank, where this week depositors flocked to check on their accounts. On Wall Street, we're witnessing an investor run on the bank, as fund managers and others flee well-known national and regional bank stocks. Talk of insolvency and FDIC takeovers abounds.
Some of the biggest names in banking--Citibank and JP Morgan Chase--are getting ready to announce quarterly earnings and it's going to be butt ugly. Meanwhile, small banks are cobbled by loan problems and may implode. Throughout the country, web sites, newspapers and business tabloids have been running stories about the "Texas ratio" of smaller banks.
The higher the percentage ratio, the greater the risk the bank tanks, unless it gets a cash transfusion.
And as anyone with a set of ears knows, housing loans are a huge problem--which is why the Bush Administration is stepping in to stabilize mortgage giants Fannie Mae and Freddie Mac.
There's more bad news to come.
Every banker worth their salt is scrambling for fresh capital (as is the U.S. auto makers and airlines.) but there's only so much money out there. After all, Warren Buffett can't buy everything.
As a wee reporter, I spent a few years covering the banking industry including the mammoth savings and loan crisis and subsequent taxpayer-backed industry bailout that cost about $200 billion. Throughout, I was constantly amazed at how many everyday folks were so blase' about the financial meltdown going on around them.
This time it's different.
Trouble has hit home--literally. People are noticing and have every right to be concerned.
We're not at a full-blown depositor panic and let's hope we don't get there. But there's little doubt that a growing number of the nation's banks, big and small, are on the brink.
Where's George Bailey when you need him?

BW Chicago: Obama's Powerful Backers

Another terrific issue of BW Chicago, Businessweek's local monthly magazine, is out. If you haven't yet subscribed to BW Chicago, then click here and start receiving this entertaining, provocative and informative magazine for free.
The June issue is highlighted by a cover story written by Roger O. Crockett, who takes a compelling look at the African American business leaders backing Barack Obama's presidential bid. It's an influential group, one that promises to have a huge impact on commerce and politics--in Chicago and beyond--for many years to come.
There's much more, of course.
For instance, how about the skinny on super-investor Warren Buffett's local investment play? Senior Correspondent Judith Crown explores the Oracle of Omaha's strategy behind his $4.5 billion purchase for 60 percent of Marmon Group, a grab bag of industrial companies run by Chicago's Pritzker family.
Meanwhile, Chief of Correspondents Joseph Weber profiles Northern Trust Co. economist Paul Krasriel, who's a little cranky and bearish about the current state of the economy. Also, J. Duncan Moore Jr. reports on the Treasure Island food store chain's expansion plans. The company (which touts itself as "America's Most European Supermarket" )is entering Hyde Park while hunting for more locations.
Contributor Howard Wolinsky writes about family-owned Horween Leather, which once supplied "Black Jack" Pershing's boots and now exclusively produces footballs for the NFL. Horween is an old company facing a new challenge: e-tailing.
And I chip in with my regular opinion column. This month: Why the recently-acquired Wm. Wrigley Jr. Co. will fade away. Click here to read it online.
There's much more.
So if you crave in-depth business news, analysis and information--presented in a bright and informative style-- then make the BW Chicago connection.

Fight! Fight! Lampert Vs. Ackman for Sears?

Is Sears the place for a hedge fund battle?
There's speculation that shareholder activist Bill Ackman, who runs his own hedge fund, could be squaring off against fellow-hedger Edward Lampert, who in his spare time oversees Sears Holdings Corp., parent company of two under-achieving corporate children--Kmart and Sears.
They would battle for control of Sears Holdings.
On this fight card, Wall Street is likely to favor Lampert, who knows how to take dog retail stocks (like Sears and AutoNation before it) and turn them into gold. But I'd go with Ackman to win the contest.
Here's why:
It's true that billionaire Lampert is tough and has the capital reserves to beat back an attack. But Ackman is also rich and more of a street fighter, who knows how to win these types of battles.
Indeed, Ackman has already pinned Lampert once in the fight over control of Sears Canada. Working with other shareholders, Ackman defeated a Lambert-led attempt to acquire outstanding shares in Sears Canada for $899 million. Ackman argued the company is worth double that price.
In addition, Ackman doesn't know how to quit.
With an assist from billionaire Nelson Peltz, he forced the Wendy's fast-food chain to restructure and spin off the Canada-based Tim Horton chain (which makes great donuts, by the way). Without Tim Horton, Wendy's was free to focus on turning around its hamburger business and its share price. Ackman sold his Wendy's stake last November, making a killing. (Today, Wendy's closed at $40.13 per share, up nearly 20 percent for the year.)
He also been shaking things up at McDonald's Corp., pressing management to restructure or spin-off assets.
Obviously, Lambert has had his victories, too.
He managed to salvage Kmart from bankruptcy (when many experts thought the chain would be liquidated)and then went on to merge with Sears Roebuck & Co., which has been on a downward sales slide since Sansabelt slacks and Johnny Carson suits went out of style.
Lambert talks a great game about building a retail empire, yet both of these chains are still disasters.
Nonetheless, Wall Steet follows his every move like a puppy because he has somehow managed to boost shares of Sears Holdings. Today it closed at $177 per share (up about 10 percent for the year).
Wall Street--which is always looking for gurus--thinks Lampert is the next Warren Buffett (which would make Sears Holdings the next Berkshire Hathaway, I suppose). Maybe the Street has it right, but Sears and Kmart are still losing customers to other better-focused and creative retail chains.
I have never really understood why the Sears Holding shares are trading at such high levels. Maybe Lampert knows something we don't. Or Wall Street just likes to think he does and is betting on the come.
All of that will be put to the test if Ackman and Lampert throw down and tussle over Sears.
I concede it's a longshot. Ackman is reportedly thinking of a couple of other well-known targets, including that King of Beers--St. Louis-based Anheuser-Busch.
Still, how about it -- a hedge fund fight between these two heavyweights?
I'd buy a ticket.

Crafty Murdoch Tees Up Dow Jones Sale

Media titan Rupert Murdoch just put Dow Jones & Co. up for sale. And he doesn't even own it.
But he did the next best thing today by offering $5 billion to acquire the owner of the Wall Street Journal, Barron's and other business publications and related Internet sites.
In making the unsoliciated offer, that's nearly a 67 percent premium over Dow Jones current share price, Murdoch is forcing that company's owners into a corner. They can take his offer or seek other buyers. But, saying no is not a viable option, unless the company's board wants to get its pants sued off by unhappy Dow Jones investors.
And when it comes to a bidding battle, never rule out Murdoch. He comes to play and pay. His $5 billion bid is about $60 per share--a height that Dow Jones stock hasn't reached in many years.
But other suitors may surface. Among the names being thrashed about: Time Warner, New York Times Co., Washington Post Co. and, my personal favorite, business news provider Bloomberg LP ---which is financially healthier and shrewder than those first three companies put together.
Marketwatch is speculating that GE, which owns NBC Universal and cable TV business network CNBC, may bid. (My opinion: Not likely.)
Hey, if we're tossing out names why not Google or Yahoo? Content is still king and Dow Jones churns out alot of it. Maybe Microsoft? Or just Bill Gates?(wouldn't it be clever to put WSJ in his charitable trust?)
Also, don't forget those private equity players or super-rich individual investors (hello, Warren Buffett) who could cut a deal with the Bancroft family--which is a controlling shareholder in Dow Jones and said it's not interested in Murdoch's offer. From there, they take Dow Jones private.
(Must be nice to turn down a huge slice of $5 billion. I have to try that sometime.)
We've already seen a similar buyout dance in Chicago, where the Tribune Co. went through an auction process only to be swooped up by investor Sam Zell (with the help of an Employee Stock Ownership Plan).
Dow Jones' case is different because Murdoch is willing to pay real money to acquire it. He sees a bargain for terrific content that could factor into his stated plans to start a new cable TV financial news network and beyond.
One thing is certain: This business news story is just beginning.

Stock Plunge, Bank Fight and More!

How does that goofy Disney song go?
"It's a small world, after all..."
Well, today's stock market plunge of nearly 800 points proves that point. It is a small world and we're in the midst of a full-blown global economic crisis.
Yes, the market rebounded but the panic-fueled free fall was triggered by news that major European nations are taking drastic measures to stabilize their financial institutions and economies. Among them: Austria, England, Iceland, Sweden and Germany.
But wait! There's more to come.
Europe is beginning to look a lot like Wall Street and not in a good way.
Many European investment banks are as highly leveraged as the our now brain-dead investment houses (aka Bear Stearns and Lehman Brothers), according to a recent Fortune magazine story.
More disturbing, these stock market gyrations aren't going to ease for awhile. Expect more fallout once a very resentful Europe is forced to cook up a U.S.-like bailout plan.(European leaders are royally ticked at the U.S. for infecting the Continent's financial system with sick subprime mortgage paper.)
And we've yet to hear from the major Asian economics, which have their own systemic problems.
All together now: It's a small world, after all.

Bank fight, bank fight! Wells Fargo and Citigroup are clawing over the bones of the near-insolvent Wachovia.
You can read details of that tussle here.
Suffice to say, Citigroup thought it had a deal to acquire Wachovia. That is until Wells Fargo stepped in with a better offer.
How will this battle be resolved?
My bet is that federal regulators, who started the Wachovia sales process rolling, will barter a Solomon-like deal.The result? Basically, Citi gets the eastern half of Wachovia and Wells gets the western half.
In the end, both banks avoid costly, and potentially ruinous, litigation. And they end up with some decent banking properties and a whole bunch of low-cost deposits for a very reasonable cost.
Half a loaf, as they say.

Flash! Economy chugs along. Despite the carnage on Wall Street, there are signs of the economy fighting back.
Some evidence: Mars completed its estimated $23 billion acquisition of Chicago-based Wm. Wrigley Jr. Co. (with an assist from billionaire Warren Buffett).
And Eli Lilly announced plans to make a $6.1 billion purchase of ImClone Systems Inc.
Now, don't we all feel a little better?