Wrigley (NYSE:WWY) may be the first name you think of when you think of the minty freshness of gums such as Big Red, Juicy Fruit, and Doublemint, but there were a few well-known confections that it didn't possess. Now, it's snapping up Kraft's (NYSE:KFT) Altoids and Life Savers brands, among others, in a $1.5 billion purchase.
The fact that Kraft might sell the brands is nothing new; Fool contributor Brian Gorman noted the possible sale in October. The beleaguered food purveyor, which is still majority-owned by Altria (NYSE:MO), has been undergoing a restructuring that included rumors of the sweet sale. Hershey (NYSE:HSY), Mars, Nestle, and Cadbury Schweppes (NYSE:CSG) were cited as the other bidders for the products.
Although it's not exactly a surprise, it is worthwhile to note that Wrigley, which previously had very little debt to speak of, will take on a $1.5 billion credit facility to satisfy its craving for the new sweets. (Its previous line of credit was a mere $300 million, and the company doesn't hurt for cash.)
Furthermore, its shareholders should prepare themselves, seeing how Wrigley said that the purchase will have a negative effect on earnings for a year, but it expects it to add to earnings thereafter. One might imagine that Wrigley will be able to squeeze more value out of the brands, considering confections are its expertise.
It might seem a little strange to watch Kraft's stable of well-known brands shrink, but it's arguable that because the company has been struggling a renewed focus on other core offerings is probably not a bad idea. It's got its hands full in terms of its existing brands, not to mention new initiatives; it's been trying out a lot of healthy posturing lately, revamping its nutrition labels and hoping to hang onto South Beach's coattails.
Meanwhile, as Brian surmised last month, there's a lot Kraft can do with the $1.5 billion it will bring in from the deal; possible uses include paring down its burdensome debt load. Talk about sweetening the deal.
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Alyce Lomax does not own shares of any of the companies mentioned. She hopes that Wrigley will continue the offbeat "curiously strong" advertisements for Altoids.
