Kraft has confirmed the sale its Life Savers and Altoids brands to Wrigley. The move complements the broader strategies of both companies: Wrigley makes a sensible move to grow its range, while Kraft unloads an operation that was unlikely to sit well in its global stable of super brands.
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Rumours emerged last month of Kraft’s plans to divest its confectionery brands following some disappointing sales figures. The plans also formed part of a wider programme that the company is undertaking to streamline its brand portfolio and focus its resources on markets in which it has a dominant position. The deal with Wrigley, which is worth US$1.48bn and also includes the Trolli and Sugus brands, therefore comes as little surprise.
From Kraft’s point of view, the $1.48bn that it is getting constitutes a better price than many had expected when it put the brands up for sale. Although Kraft did not say what it will do with the proceeds, the company has generally been using cash for share repurchases, dividends and to lower debt while it also looks for suitable acquisitions that fit its global portfolio of major brands.
In contrast, the agreement is the biggest in Wrigley’s 113-year history, and saw it beat rival bidders including Cadbury Schweppes and Nestlé. Crucially, the deal facilitates expansion in the confectionery segment, where it already has considerable distribution capabilities through its gum business. It should also be able to dedicate itself to the development of the brands in a way that Kraft could not – for example, an obvious step would be to sell them alongside its gum range at superstore checkout desks.
Wrigley has long been eager to expand beyond its traditional chewing gum business but previous attempts have been largely unsuccessful. The company tried to buy the chocolate producer Hershey in 2002 but the deal fell through after Hershey’s controlling trust pulled it off the market. The Life Savers-Altoids acquisition allows it to grow its product range without moving too far from its core competencies.
Given the clear, tangible benefits that both parties are extracting from the deal, and the manner in which the benefits complement their respective strategic directions, this deal was concluded relatively smoothly. Kraft will be hoping the sale of other non-core elements of its business is similarly painless.
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