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Monday, April 28, 2008

Mars buying gum maker Wrigley with financing from Buffett

Mars agrees to buy gum maker Wrigley for about $23B with financing help from Warren Buffett

CHICAGO (AP) -- The Oracle of Omaha is betting that the country's candy jar is recession-proof.

With financing from Warren Buffett, candy maker Mars Inc. on Monday said it is buying confectioner Wm. Wrigley Jr. Co. for an estimated $23 billion in cash. The deal would marry brands that sweet-toothed Americans have munched on for decades: Mars owns Snickers and M&Ms; Wrigley's gum brands include Juicy Fruit, Orbit, Extra and Big Red.

"A good time to buy a really great business is when you can do it," Warren Buffett said on CNBC Monday, adding that he understands Mars and Wrigley better than the balance sheets of most major banks.

Buffett's Berkshire Hathaway Inc. will purchase a $2.1 billion minority equity interest in the Wrigley subsidiary once the deal is completed. The Omaha, Neb.-based company also offered $4.4 billion of subordinated debt to fund the deal.

"In terms of Warren Buffett's sweet spot, these are exactly the kind of brands that he wants," said Jet Hollander, a former candy industry executive who is president of the snack food consulting firm Pre-Eminence Strategy Group.

If the buyout receives regulatory and shareholder approval, the combined companies would leapfrog over Britain's Cadbury Schweppes as the world's largest confection maker -- a move that's already fueling speculation that the buyout could spawn a round of candy industry consolidation.

"I look at it as two companies that see the opportunity to create a true global confectionary powerhouse," said Morningstar analyst Mitchell Corwin. "They become No. 1 in chocolate and No. 1 in chewing gum with a strong international presence and growth in emerging markets."

Under the agreement, shareholders at Chicago-based Wrigley would receive $80 in cash for each share. Mars will also assume less than $1 billion of Wrigley debt.

Executives said family owned Mars first began eyeing Wrigley in January and approached the company with their unsolicited bid in April 11. Since then, the two sides have haggled to reach the $80-per share offer -- a 28 percent premium to Wrigley's Friday closing price of $62.45.

Monday's announcement sent Wrigley's shares into overdrive, reaching an all-time high.

"I think this is a bold move, but beyond that, I think this is the right move," said Wrigley Chief Executive Bill Perez.

After the buyout is completed in six to 12 months, Wrigley would become a subsidiary of McLean, Va.-based Mars. Its headquarters will stay in Chicago, where the business has operated since it was founded by the Wrigley family in 1891. The Wrigley family will no longer hold any equity in the company.

"I have talked to some family members and I anticipate that they all will be very supportive of this, because it makes sense for really everybody," said Bill Wrigley Jr., the company's executive chairman and the fourth-generation family member to lead the business. "It's not just about selling out for dollars. It is more about what is the right thing and how can we grow going forward."

The company's name has been synonymous with Chicago for decades. The gum maker's ornate towering headquarters along the Chicago River is a favorite among tourists for snapping pictures. And the Chicago Cubs historic ballpark -- Wrigley Field -- got its name while the team was owned by the Wrigley family, which sold the franchise decades ago.

Executives said Wrigley would gain little benefit in weathering a run-up in commodities costs, but said the deal would allow the company to enhance its sales, marketing and distribution systems.

Among the early changes after the deal is complete, Wrigley would take over control of Mars' non-chocolate candy, including Starburst and Skittles.

Wrigley said the impact the company's 14,000 employees would be minimal. Wrigley will remain executive chairman and officials said the company's executive team would likely stay in place.

Officials said Wrigley's board, which unanimously approved the $80-per-share offer over the weekend, would examine any other offers submitted to the company.

But Citigroup analyst David Driscoll said he thought a competing offer would be unlikely.

"The only other likely buyer that we believe would benefit from acquiring Wrigley would be Hershey; but we view this as an unlikely outcome given the current situation," he told investors in a research note.

The Hershey Co. has struggled with flattening sales and rising commodity costs since late 2006 as it spends heavily to expand its overseas presence and cut back its work force in North America.

Meanwhile Monday, Wrigley said its first-quarter profit rose 18 percent, thanks to strong sales in Eastern Europe and Asia and a weakened U.S. dollar.

The company earned $168.6 million, or 61 cents per share during the January-through-March quarter. That's up from $142.7 million, or 52 cents, last year. Revenue climbed 16 percent to $1.45 billion last year. Analysts polled by Thomson Financial expected a profit of 55 cents per share on revenue of $1.39 billion.

Wrigley shares rose $14.46, or 23.2 percent, to close at $76.91.

Sunday, April 27, 2008

Reptile store offers cooked insects to visitors

Carlinville family members (from left) Kelly Taylor-Wilson, Chance Wilson, 10, and Allie Wilson, 14, bite into their crickets at the same time at the 3rd Annual Customer Appreciation Day at The Tye-Dyed Iguana in Fairview Heights on Saturday.

Fairview Heights —With the sweet smell of barbecued cockroaches wafting through the air, "Chef" Dave Gracer, chopsticks in hand, poked around at a scorpion deep-frying in a pot of canola oil.

The crowd lined up in front of him, jockeying for their free spoonfuls of sauteed crickets and rice.

"It's a long story," Gracer says, recounting how he became one of the country's pre-eminent bug gourmets, "but basically I was a finicky eater as a kid. Then one year a friend gave me some mealworms as a birthday present, and that's how it started."

Now, nearly a decade later, the bespectacled writing teacher from Rhode Island has fashioned a second career out of entomophagy — the practice of eating bugs — lecturing around the country on the merits of insect consumption. Gracer wants to persuade people that eating bugs is actually quite normal, not just something for eccentrics with a taste for the unusual. Gracer points out that insects are a sustainable food source that has been consumed by certain cultures for centuries. Because insects are low on the food chain, they don't consume the resources that other protein sources — say chicken or pork — do.

On Saturday, he was the star attraction at the Tye-Dyed Iguana, an exotic reptile store holding its third "customer appreciation" event for its mostly tattooed, pierced and snake-and-lizard-loving clientele.

"I was looking for edible bug recipes on the Internet, and I just stumbled across him," said Matt Smallheer, the dreadlocked owner of the store. "He's a bug chef — that's what he does."

Smallheer knew it would be a perfect fit for his customers, so he invited Gracer to Fairview Heights, where the insect expert, along with some other attractions, drew nearly a thousand people — and their brave appetites.

"I ate cockroaches," said Lauren Case, a multiply pierced 22-year-old from Belleville. "They were very barbecue-saucy. They were pretty crunchy, and kind of gooey in the middle, sort of like when you have fat on a rib."

Case was lined up for more. Nearby, Craig Earland stood in the crowd, munching on some crickets.

"I lived in Korea for six years with the Air Force," Earland said. "I had scorpion, cockroach, dog, cat. This is nothing. I'm waiting on a scorpion. I had 'em boiled last time."

The bugs were not the only draw Saturday. Lizard Man — who has undergone 700 hours of tattoo work and is covered in reptilianesque scales — stood for photos with kids, sticking his forked tongue out for each shot.

Meanwhile, the real reptiles inside the store seemed to be getting some attention, too.

Nick Cleveland stood by the store's doorway, which was flanked by clean-cut young men from the Mormon Church, wearing their crisp white shirts.

"This is Aphrodite," Cleveland said, introducing the 8-foot-long Albino Burmese Python encircling his neck.

Not far away, kids were lined up to get pierced at the $20 piercing booth.

"This is much bigger than last year," said Bill Fox, the store's rodent caretaker, musing on the large crowd. "A lot of people who are into reptiles are into piercing. But there are also, I guess, what you'd call normal people here, too."

Despite Gracer's efforts to persuade, insects remain a hard sell.

Sheryl Hagen and her daughter Sydney picked at a plate of crickets, bracing themselves for the moment.

Sydney, 8, stuck one of them in her mouth and chewed for a moment. Then she leaned over, spit the bug out, and ran inside to the bathroom.

"She ate a cricket," her mom said, shrugging. "I ate one, too. It was crunchy. Not bad. But not for me."

For an audio slide show, click here:

Monday, April 14, 2008

Retailing Chains Caught in a Wave of Bankruptcies

The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.

But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.

Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117 and the jeweler Zales will close 100.

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.

“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners.

“For years, no deal was too ugly to finance,” he said. “But now, nobody will throw money at these companies.”

Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-short chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.

When it filed for bankruptcy, Sharper Image owed $6.6 million to United Parcel Service. The furniture chain Levitz owed Sealy $1.4 million.

And it is not just large companies that are absorbing the losses. When Domain, the furniture retailer, filed for bankruptcy, it owed On Time Express, a 90-employee transportation and logistics company in Tempe, Ariz., about $30,000.

“We’ll be lucky to see pennies on the dollar, if we see anything,” said Ross Musil, the chief financial officer of On Time Express. “It’s a big loss.”

Most of the ailing companies have filed for reorganization, not liquidation, under the bankruptcy laws, including the furniture chain Wickes, the housewares seller Fortunoff, Harvey Electronics and the catalog retailer Lillian Vernon. But, in a contrast with previous recessions, many are unlikely to emerge from bankruptcy, lawyers and industry experts said.

Changes in the federal bankruptcy code in 2005 significantly tightened deadlines for ailing companies to restructure their businesses, offering them less leeway.

And the changes may force companies to pay suppliers before paying wages or honoring obligations to customers, like redeeming gift cards, said Sally Henry, a partner in the bankruptcy law practice at Skadden, Arps, Slate, Meagher & Flom and the author of several books on bankruptcy.

As a result, she said, “it’s no longer reorganization or even liquidation for these companies. In many cases, it’s evaporation.”

Several of the retailers that filed for Chapter 11 bankruptcy protection over the last eight months, like the furniture sellers Bombay, Levitz and Domain, have begun to wind down — closing stores, laying off workers and liquidating merchandise.

In most cases, the collapses stemmed from a combination of factors: flawed business strategies, a souring economy and banks’ unwillingness to issue cheap loans.

Bombay, a chain with 360 stores, was considered a success in the furniture world, after its sales surged from $393 million in 1999 to $596 million in 2003.

Then the chain decided to move most of its stores out of enclosed malls into open-air shopping centers. It started a children’s furniture business, called BombayKids. And it started carrying bigger items, like beds and upholstered couches, with higher prices than its regular furniture.

Consumers balked at the changes, hurting Bombay’s sales and profits at the same time that its expenses for the ambitious new strategies began to grow. The timing was unenviable: By early 2007, the housing market began to falter, so purchases of furniture slowed to a trickle.

The company was running out of money, but banks refused to lend more. “They did not want to take the chance that we might not repay the loans,” Elaine D. Crowley, the chief financial officer, said in an interview.

In September 2007, Bombay filed for bankruptcy protection. The highest bid for the company came from liquidation firms, who quickly dismembered the 33-year-old chain. Bombay, which once employed 3,608, now has 20 employees left. “It is very difficult and sad,” Ms. Crowley said.

The bankruptcies are putting a spotlight on a little-discussed facet of retailing: heavy debt.

Stores may appear to mint money by paying $2 for a T-shirt and charging $10 for it. But because shopping is based on weather patterns and fashion trends, retailers must pay for merchandise that may sit, unsold, on shelves for long periods.

So chains regularly borrow large sums to cover routine expenses, like wages and electricity bills. When sales are strong, as they typically are during the holiday season, the debts are repaid.

Fortunoff, a jewelry and home furnishing chain in the Northeast, relied on $90 million in loans to help operate its 23 stores, using merchandise as collateral.

But by early 2008, as the housing market struggled, the chain’s profits dropped, meaning its collateral was losing value and the amount it could borrow fell.

In better economic times, the banks might have granted Fortunoff a reprieve. But with a recession looming, they refused, forcing it to file for bankruptcy in February. In filings, the chain said it was “facing a liquidity crisis.” (Fortunoff was later sold to the owner of Lord & Taylor.)

Plenty of retailers remain on strong footing. Arnold H. Aronson, the former chief executive of Saks Fifth Avenue and a managing director at Kurt Salmon Associates, a retail consulting firm, said the credit tightness and consumer spending slowdown have only wiped out the “bottom tier” companies in retailing.

“This recession dealt the final blow to these chains,” he said. But several big-name chains are looking vulnerable. Linens ’n Things, which is owned by Apollo Management, a private equity firm, is considering a bankruptcy filing after years of poor performance and mounting debts, though it has additional options, people involved in the discussions said Monday.

Whether more chains file for bankruptcy or not, it will be hard to miss the impact of the industry’s troubles in the nation’s malls.

J. C. Penney, Lowe’s and Office Depot are scaling back or delaying expansion. Office Depot had planned to open 150 stores this year; now it will open 75.

The International Council of Shopping Centers, a trade group, estimates there will be 5,770 store closings in 2008, up 25 percent from 2007, when there were 4,603.

Charming Shoppes, which owns the women’s clothing retailers Lane Bryant and Fashion Bug, is closing at least 150 stores. Wilsons the Leather Experts will close 158. And Pacific Sunwear is shutting a 153-store chain called Demo.

Those decisions were made months ago, when it was unclear how long the downturn in consumer spending might last. If March was any indication, it is nowhere near over. Sales at stores open at least a year fell 0.5 percent, the worst performance in 13 years, according to the shopping council.

Saturday, April 5, 2008

A nice pizza change

Fourteen years ago, Chris Clark shelled out 20 bucks to register the domain name "" This afternoon, he sold it for $2.6 million.

"It's crazy, it's just crazy," he said somewhat giddily yesterday morning from his home in North Potomac. By then, a week's worth of anonymous bidding at an online auction site had pushed the price to today's high. The auction closed at 2 p.m. today.

"That amount of money is significant," said Clark, 43, who recently launched a software company. "It will make a significant difference in my life, for sure."