Warren Buffett chews gum and identifies value at the same time | FT Alphaville

Warren Buffett chews gum and identifies value at the same time

Is this the ultimate expression of Buffettology?


Founded in 1891, the William Wrigley Jr Company, began giving away its eponymous gum with cans of baking powder before customer demand encouraged a refocusing of the business.

It was run by members of the Wrigley family all the way up until 2006, when  former Nike boss William Perez took the helm.

Similarly, Mars Incorporated, founded by the Mars family in 1911, recently passed to non-family management on the retirement of John Franklyn Mars.

Now, according to the Wall Street Journal, Mars is hooking up with Warren Buffett to buy Wrigley’s for about $22bn – a 25 per cent premium to Wrigley’s market price.

Classical value investment theory says you should back iconic brands, with strong market share, but which happen to be out of fashion and available at less than their intrinsic value.Mars bar

Wrigley’s would appear to be a natural fit. Having stuck obsessively with its core product for so many years, the company branched out into Life Savers and Altoids, acquired from Kraft in 2004. But the stock price has done little more than travel sideways since.

Mars, meanwhile, is just obsessively secretive. The business remains unlisted and family-owned, and senior executives insist that they have no need to account to anyone but than themselves.

How that might fit with Mr Buffett’s famous tendency to do business with his mouth open remains to be seen.

The Journal said on Monday that terms of the planned takeover remained unclear, although it said one scenario had Buffett’s Berkshire Hathaway providing finance to Mars and then also becoming a shareholder in Wrigley.

For Buffett, of course, owning a piece of Wrigley’s takes the Sage of Omaha back to his roots: his grandfather, who ran a grocery store, sold the young Buffett Wrigley’s chewing gum, which he then sold door-to-door.

Related links:
John Gapper’s business blog – Chewing gum versus credit derivatives
The veteran of value
– FT profile