THE DECISION
The decisions to be taken by Wrigley management were challenging. A way ahead for the company to gain market leadership in the Indian confectionary market was through acquisitions. Two of Wrigley ' s biggest competitors had already taken the acquisition route with Perfetti acquiring Van Melle earlier and this had made the company stronger, and Cadbury acquiring Adams. Wrigley needed to make a decision fast or might just end up lagging way behind its competitors. Being one of the biggest players in the confectionary market in the global arena, Wrigley had the required capital and commanding position to acquire one of the market leaders in the Indian confectionary market.
The management was looking into the possibilities of acquiring Joyco in India. Also, the acquisition of Joyco would help Wrigley win in the non-gum sector, which made it an important reason for going for a company like Joyco. The world had been carved by manufacturers in the gum segment and it was difficult for Wrigley to beat Cadbury in traditionally strong markets and win – South America, parts of the US and some markets in Africa. Non-gum was thus deemed to be a way to grow in the business.
A second decision that Wrigley would have to take if they acquired Joyco was whether to acquire Joyco in just the Indian market or go ahead and seek a transaction that could involve Joyco ' s operations in China, France, Italy, Poland and Spain as well. As per the reports prepared by the accounting team looking at this possibility, the global acquisition of Joyco including the one-time charges was expected to have a slight negative impact on company earnings in the current year( less than $ 0.05 per share). However, it was expected to contribute positively to Wrigley ' s profitability in 2005.
In the Indian context the acquisition could be viewed as a move that would spur the Rs. 1500 crores Indian confectionery market. With Joyco ' s Rs 180 crores sales coming from popular brands like Boomer and PimPom added to its own, Wrigley could pole-vault to No. 2 position in India, ahead of Candico besides bagging Joyco ' s network of 1,900 distributors and four lakh outlets.
Speculations were rife, with the industry experts feeling that the acquisition would help in consolidating the Indian confectionery market, which remained a fragmented, high-volume, low-margin business. Since the confectionery trade was driven by distribution and trade margins, survival in the market was tough.
If however this acquisition did take place, a major concern faced by the management would be the asset heavy nature of the integrated business as compared to their turnover. Since no immediate synergies in technology were possible, spare capacity in the Bangalore Wrigley factory could not be leveraged in the short term to reduce the asset burden.
Also, in case of India and keeping in mind the current market leadership position, a peculiar case if the acquisition went through, would be the fact that the Wrigley team who were the acquirers would have to be absorbed by the so called acquired company, posing a huge HR dilemma for the Wrigley management.
Some of the insiders however felt that the Joyco acquisition globally, would be the right move for Wrigley. " As with any acquisition we pursue, our intent is to support our existing strategies and focus on growth synergies," commented Ron Waters, Chief Operating Officer of Wrigley. " To that end, the talent, technologies, brands and distribution networks of Joyco will help accelerate our plans to expand Wrigley ' s participation in the broader confectionery arena."
While having great faith in Waters ' counsel, Bill Wrigley Jr., Chairman, President and CEO, Wrigley, reflected, " The key drivers of acquisitions for the Wrigley Company are a strategic fit and hold potential for significant value creation. Can we achieve it with Joyco ' sacquisition?”
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EXHIBITS Exhibit 1: Sales and Growth Gum market by Value
Value($ Billion)
World Confectionery Trade Value and Growth, 1999-2004
20
30 %
15 10 5
20 % 10 %
Exhibit 2: Sales and Growth Gum market by Volume
Year-to-year Growth
0-10%
1999 2000 2001 2002 2003 2004F
Source: Global Trade Atlas, reported exports from 54 countries as of 3 / 20 / 05; Forecast: FAS
Volume( Million tons)
World Confectionery Trade Volume and Growth, 1999-2004
6
10 %
5 4 3
2 |
|
|
|
|
|
|
2 % |
0 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004F |
0 % |
Source: Global Trade Atlas, reported exports from 54 countries as of 3 / 20 / 05; Forecast: FAS |
0 %
8 % 6 % 4 %
Year-to-year Growth
Value Growth
Volume Growth
51