P&G's next $1 billion brands

 

Two years ago, the Fusion brand of battery-powered, hand-held razors didn't exist. Last week, Procter & Gamble's top executives said Fusion was poised to become the fastest P&G brand ever to reach the $1 billion sales mark.

That the brand grew so quickly, and that P&G's top executives highlighted it during the third-quarter earnings call was a nod to a primary tenet of the Procter & Gamble corporate religion: the billion-dollar brand. Chairman and CEO A.G. Lafley has emphasized the power of the billion-dollar brand during his nearly eight-year tenure.

Of the nearly 300 labels the company sells worldwide, 23 account for $1 billion or more each in annual sales; 18 others, including Fusion, are on the cusp with sales between $500 million and $999 million a year.

Those 41 brands represent the current and future most important marques for the world's largest consumer-products company, whose revenues were $76.5 billion last year.

By contrast, Kimberly-Clark, a P&G rival focusing on paper products which had annual revenues of $18.3 billion last year, lists four brands with annual sales of $1 billion or more on its Web site.

"You want as high a percentage of your sales to come from as small a group of brands as possible," said Linda Bolton Weiser, an analyst with Caris & Co. in New York.

"You get more efficient production runs, more efficient media buys. It's like the business concept of leverage."

How does a product go from concept to one of the largest in P&G's portfolio? The Enquirer asked P&G brand executives to explain the trajectory of Fusion and five other brands nearing $1 billion in sales. Some were conceived inside the company's Cincinnati headquarters, while others grew out of ideas Procter sought from outside companies, and still others were acquired. Some, like Fusion, have grown quickly; others have taken more than a decade. All of them are growing both in the U.S. and in developing markets around the world.

P&G closes Frédéric Fekkai deal

 

Procter & Gamble Co. has closed on its acquisition of Frédéric Fekkai & Co., a luxury hair care firm, further expanding its beauty business into high-end, professional products.

Fekkai, founded by stylist Frédéric Fekkai, operates salons in such cities as New York, Beverly Hills and Palm Beach, and its products are sold in Saks Fifth Avenue, Nordstrom and Sephora. Its broad line of shampoos, conditioners and styling gels are priced accordingly, with an 8-ounce bottle of full-volume shampoo tagged at $22.

By further expanding its hair-care portfolio into the prestige category, P&G can reach a broader cross-section of consumers who are, importantly, in a high-margin business. Earlier such moves include its 2003 acquisition of Wella, also a professional brand.

"With the closing of the deal behind us, we now look forward to partnering with the Fekkai organization to build the brand and grow the business together," said Craig Bahner, P&G's vice president and general manager for North America Hair Care, in a press release.

Frédéric Fekkai has been appointed "brand architect," and will continue to oversee creative efforts and brand image.

"I'm thrilled to continue to inspire and shape the essence of the Fekkai brand," he said in the release. "P&G is the ideal partner to build on my original vision of offering women the ultimate in luxury hair care."

The hair care company was owned by equity firm Catterton Partners, based in Greenwich, Conn.

Bristol-Myers agrees to sell ConvaTec wound-care unit in $4.1 billion deal with Nordic Capital and Avista Capital.

Mars's Takeover of Wrigley Creates Global Powerhouse

 

Closely Held Firm To Pay $23 Billion; Kitchen-Table Talks

 

Discussions between Wm. Wrigley Jr. Co. and Mars Inc. to blend two of the best-known names in sweets into the world's largest candy maker began, like any important family gathering, around the kitchen table.

On April 11, Bill Wrigley Jr., executive chairman of the chewing-gum empire that bears his name and the fourth consecutive Wrigley to lead the company, went to McLean, Va., to meet with Mars Global President Paul Michaels and Chief Financial Officer Olivier Goudet. They had called Mr. Wrigley to request the meeting, and before long the three men were sharing sandwiches over Mr. Michaels's kitchen table.

By the early hours of Monday morning, the two sides had finalized a deal. Mars, together with Warren Buffett's Berkshire Hathaway Inc., agreed to acquire Wrigley for about $23 billion. The transaction, expected to close in six to 12 months, joins two of America's ubiquitous brand names: Wrigley, maker of the eponymous chewing gum, and Mars, the closely held company behind Snickers chocolate bars and M&M's.

Under the agreement, Wrigley shareholders will receive $80 in cash for each share held, a 28% premium to Friday's price. On Monday, shares rose 23% to close at $76.91 in 4 p.m. composite trading on the New York Stock Exchange.

The deal was a big surprise across Wall Street late Sunday, but the effects are clear: a colossal candy-and-gum company investing in new markets around the globe, without having to answer to public shareholders. That freedom and market power pose a threat to the other major food companies -- particularly Hershey Co. and Cadbury Schweppes PLC -- that have been weighing merger plans for years. Both Hershey's and Cadbury's shares rose Monday.

While both Mars and Wrigley tout the comfortable fit of products and cultures, Mars has no experience with a deal of this scale. And it's moving into Wrigley at a very high price, paying 32 times Wrigley's expected earnings for 2008. That means that even if Mars is successful in integrating the company, it may be difficult for it to turn a decent profit without substantial revenue growth in the years ahead.

Though the Mars-Wrigley deal was completed in a matter of weeks, it had been contemplated for years. Mars, which is 100% owned by the Mars family, had known for some time that it would one day woo Wrigley, people familiar with the matter say. "It was a matter of when, not if," said one person involved in the deal.

Like many families that own businesses for generations, the Wrigley family, which controls at least two-thirds of Wrigley's supervoting B shares, had become less engaged in the company. Mr. Wrigley -- who controls 45% of the B shares through trusts and is the only member of the family who's deeply involved in the business -- said he didn't have much discussion with relatives during the negotiations.

The move is a bold one for the Mars family, led by brothers John Mars and Forrest Mars Jr., both former presidents of the company. Today some of the Mars brothers' children hold various management positions at the company, according to a Mars spokeswoman. A message left at the Mars family ranch in Wyoming was not returned.

Meeting in the Kitchen

At the meeting in Mr. Michaels's kitchen, Messrs. Michaels and Goudet walked through their rationale for combining the two companies, but they made no offer. One of the keys to the strategy is distribution, pushing more gum and more candy in more spots around the globe, such as India, China and Russia. Joined together, they could reach these markets more effectively. "I basically did a lot of listening at that point," Mr. Wrigley said in an interview Monday.

Mr. Michaels, Mars global president, said plans to buy Wrigley first came together about three months ago. Getting the phone call "was a surprise," Mr. Wrigley said. "I wasn't sure, and they were not very specific even when they called me, what they wanted to meet about. I just came in cold."

After his return to Chicago, Mr. Wrigley briefed his company's board, and it gave the go-ahead to continue talks.

Longtime Mantra

He said he kept in mind his longtime mantra of respecting the past but doing what was right for the future.

"When you cling to beliefs of the past too much, you end up making the wrong choices," Mr. Wrigley said. He also felt that the regulatory pressures and disclosure requirements make publicly held companies less competitive, and that going private would relieve many of those pressures. Wrigley, which has annual sales of $5.4 billion and employs about 16,000 people, has been a public company since 1923.

In discussions with Mr. Wrigley, Mr. Michaels argued that the two companies would fit well together because of their similar histories and shared values, according to people familiar with the matter. Mars was willing to pay a hefty premium, while also preserving the Wrigley name and the company's presence in Chicago, but Wrigley pressed for a better offer.

Wrigley's board was concerned about the certainty of the financing for the deal given the tight credit markets, said William Perez, Wrigley's president and CEO. The Mars clan knew early on that it would need a partner to complete the transaction. Mr. Buffett fit the bill, both for his deep pockets and reputation for discretion.

Mr. Wrigley said that part of the reason Mr. Buffett got involved was because "he's one of the few people in the world with access to large sums of capital" and because "he tends to do things very quickly and very efficiently."

A key figure behind the transaction was Goldman Sachs partner Byron Trott. Mr. Trott has worked for Mars and Wrigley and is a favorite of Mr. Buffett, who said of the banker in his most recent investor letter: "I trust him completely." People involved in the transaction say these relationships were crucial to its success.

Mr. Trott, representing Wrigley, approached Mr. Buffett about joining with Mars. A longtime admirer of Mars, Mr. Buffett readily agreed. In an interview with CNBC, Mr. Buffett said he got involved in the deal because the two companies have great brands. "I've been conducting a 70-year taste test...and they met the 70-year taste test," Mr. Buffett said. "The Mars people asked me about participating in this, and we are financing. But we are a very, very junior partner, although we will have about $6.5 billion in it." He said he does not anticipate tying the Mars and Wrigley brands with any of his other investments in sweets, which include See's Candies and Dairy Queen.

As the deal came together, a roughly 12-person team on the Wrigley side was calling each other so frequently that Mr. Perez kept with him a small laminated card with each of their phone numbers.

Last week, Mr. Wrigley went to Wyoming to meet with members of the family that controls Mars to get to know them, he said.

Negotiations got "more active" over the weekend as the two sides pulled together the details. Wrigley got Mars's final offer at 5 p.m. Sunday, and Wrigley's board approved the deal in a phone meeting that concluded an hour later. The two sides were still exchanging documents to finalize the agreement at 2 a.m. Monday.

Mr. Michaels said that speculation of deals involving candy players Hershey and Cadbury did not prompt his company to buy Wrigley.

"What came into play more was, when you look at an offer as a director of a company...you say, 'OK, I could get this amount per share now versus some number, kind of guessing in the future,'" Mr. Wrigley said. "If that number gets big enough now, there's risk in any company of something happening that won't enable you to get to a bigger number in the future."

Mr. Wrigley said he plans to stay involved in the business and will remain its executive chairman.

While Wrigley started in the late 19th century on the strength of chewing gum that Mr. Wrigley's great-grandfather originally gave away to sell baking powder, Mars has its roots in the home-made butter-cream candies Frank C. Mars and his wife, Ethel Healy, made out of their kitchen in Tacoma, Wash.

Mars is now a diversified, global food company that sells everything from pet-food brands such as Whiskas and Pedigree to food and beverage brands such as Uncle Ben's rice and Flavia coffee. The company has $22 billion in annual revenues, about 70% of which is generated outside of the U.S.

The company is 100% owned by the Mars family. In addition to holding management positions, members of the family sit on the company's supervisory board. Mr. Michaels is an outsider who joined Mars more than 10 years ago and has been global president for the past four years.

First Move

The Wrigley company made its first move away from family control in October 2006, when Mr. Wrigley announced he would step down as CEO to become executive chairman. The company named Mr. Perez the first non-Wrigley family CEO in the company's then 115-year history.

Mr. Wrigley has been much more of a risk-taker than his father, who died suddenly in 1999. He has pushed to diversify the company beyond just a gum maker and transform Wrigley into a broader confectionery company. He dabbled in medicinal gum and bought the Altoids and LifeSavers brands from Kraft Foods Inc. while also holding to traditions, like hiring a new pair of Doublemint twins.

His boldest move never saw fruition. In 2002, Wrigley beat out Nestlé SA and Cadbury with its $12.5 billion bid to buy Hershey. But the trust that controls Hershey got cold feet and the deal fell through at the last minute. Some analysts and investors, though, felt Mr. Wrigley was a bit too risky at times and that he and his board realized they needed the expertise of a more seasoned consumer-products executive.

Mr. Perez was brought on at a time when the Wrigley company was struggling to integrate LifeSavers and Altoids -- its biggest acquisition ever. Some analysts felt the company paid too much for the ailing brands. After initially telling investors that the deal would boost earnings in 2006, Mr. Wrigley later admitted that the brands -- acquired for $1.46 billion in 2005 after the deal was announced in 2004 -- needed more investment and would sap 2006 profits.

Though it's public, Wrigley has some operating practices of a private company. It does not hold quarterly earnings calls and only addresses its shareholders once a year at the annual shareholders meeting.

The Federal Trade Commission is expected to review the deal but is unlikely to challenge it on antitrust grounds, lawyers said. While both companies are market leaders in the candy business, investigators are likely to focus on the companies' individual product lines, which are largely complementary.

Mars, Buffett Team Up to buy Wrigley

 

$22 Billion Deal Would Reshape Candy Industry

Mars Inc. and Warren Buffett's Berkshire Hathaway Inc. were close to a pact to acquire Wm. Wrigley Jr. Co. for more than $22 billion, according to people familiar with the matter, in a deal that would remake the global confectionery landscape.

A deal would unite two icons of the U.S. candy business: Wrigley, maker of the eponymous chewing gum, and Mars, the closely held company behind Snickers chocolate bars and M&M's.

The transaction was expected to be announced as early as Monday, the people said. Both companies declined to comment.

Terms of the deal weren't immediately clear, but Wrigley has a stock market value of about $17.3 billion and it appeared that the buyers were prepared to offer a rich premium.

Under one scenario under discussion, Berkshire would likely provide financing to Mars for the deal and become a stakeholder in Wrigley, according to people close to the deal.

A deal would expand Mars's already considerable global reach. Wrigley generates the majority of its sales outside of the U.S. In recent years, it has expanded its offerings well beyond chewing gum. Mars is the world's largest maker of chocolate by sales, with a market share of 15%.

A deal could spark further consolidation in the global candy business. Hershey Co. and Cadbury Schweppes PLC, for example, could be forced to merge. The two discussed a deal last year, but talks fell apart. Cadbury in May will split off its beverage unit, which includes Dr Pepper and 7Up, potentially paving the way for a deal. Hershey has been hurt in recent years by competition from Mars, its longtime rival.

In 2005, Wrigley bought Kraft's candy assets, including Altoids and LifeSavers, for about $1.5 billion. Wrigley also recently purchased a Russian chocolate company. The family-controlled company was close to a deal to acquire Hershey Co. in 2002 for about $12.5 billion, but talks fell apart at the last moment.

A weak dollar and strong foreign demand have boosted Wrigley's profit recently. But the company has struggled in the U.S., where it faces intense competition.

Wrigley's products include Extra, Eclipse and Orbit gums.

If successful, a deal for Wrigley would bring together two companies controlled by intensely private dynasties: the Mars of northern Virginia and Wrigleys of Chicago. Following the death of patriarch Forrest Mars Sr. in 1999 at the age of 95, speculation grew that the company would be sold to Nestle SA or another global company, but Mars has held firm.

A sale would end Wrigley's independence. The company was founded in the late 19th century by William Wrigley Jr. As a boy, he ran away from Philadelphia to New York, where he hawked newspapers and slept on the street, according to a 1920 article in American Magazine. Years later he went to Chicago to peddle soap, then baking powder, to shop owners. To entice them, he gave away two packages of chewing gum with each can of baking powder. When the gum became more popular, he started selling that instead.

Soon he was making his own gum. Juicy Fruit hit shelves in 1893. By 1920, he was making nine billion sticks of gum a year and had become the world's largest advertiser of a single product. In 1923, the company went public.

The Wrigley family helped build Chicago and remains one of its best-known dynasties. Wrigley's Michigan Avenue headquarters is one of the city's landmark buildings. The family's name is on everything from the Chicago Cubs baseball stadium to the Wrigleyville neighborhood to part of the new Millennium Park.

Mr. Buffett is famous for confidence in the staying power of iconic consumer brands such as Coca-Cola. Though he normally does deals without a partner, he has long admired Mars.

Kraft To Divest Certain Trademarks In Spain, Hungary

Kraft Foods Inc. said Thursday it agreed to divest some of its trademarks in Spain and Hungary to meet regulatory requirements connected to its acquisition of Group Danone's global biscuits business.

Kraft said it will sell its Artiach biscuits business in Spain to Panrico, and its Balaton chocolate trademark in Hungary to Nestle SA

Financial terms of the agreements were not disclosed.

Kraft said the divestitures will not affect its ongoing businesses in Spain and Hungary.

Novartis Picks Up eye care business Alcon from Nestle

Novartis AG agreed to buy a controlling stake in eye-care company Alcon Inc. from Nestlé SA for about $39 billion, in one of the most aggressive steps yet by a pharmaceutical company to diversify beyond its main business -- selling prescription drugs -- into faster-growing areas of health care.

Alcon is best-known to consumers for its contact-lens solutions, but most of its $5.6 billion in sales for 2007 came from devices used in eye surgery and from medicines for eye diseases such as glaucoma. The agreement marks what will be one of the biggest-ever takeovers in Switzerland, home to Novartis and Nestlé, which bought Alcon when the food giant was a diversified conglomerate. Novartis plans to buy Nestle's 77% stake in Alcon in two parts, and leave the remaining 23% publicly traded.

Global prescription drug sales have flagged in recent years as insurers and state health-care systems attempt to cut costs and increasingly demand that patients take cheaper generic drugs instead of brand-names. Adding to the problems: Drug companies have had a hard time discovering new drugs and bringing them to market amid heightened regulatory scrutiny.

Novartis argues that Alcon's business is less vulnerable to the problems facing the prescription-drug industry. Surgical equipment can command high prices because it has no generic competition, Novartis says. And consumers often pay for procedures such as laser eye surgery out of their own pockets, which cuts frugal insurers and state health systems out of the equation.

Opthamologists are also typically less likely than other doctors to prescribe generic drugs, says Myron Winkelman, a consultant in West Bloomfield, Mich., who advises employers on how to manage their health-care costs.

Novartis Chief Executive Daniel Vasella said he expects Alcon's business to benefit from the aging of the world's population because eye troubles such as cataracts and glaucoma are more common in the elderly. "We anticipate and hope [Alcon sales] continue to grow dynamically. And the margins are very attractive," he said in an interview Monday. Alcon has had annual sales growth of 13% every year since 2002, Novartis said. By contrast, Novartis expects sales in its branded prescription-drug unit to grow in the low-single-digit range this year.

Dr. Vasella, a psychoanalyst and physician by training, is now one of the industry's longest-serving CEOs. He worked on the 1996 merger of Ciba-Geigy AG and Sandoz AG that created Novartis, and has been CEO ever since.

Novartis has been stung by the changing industry landscape and is trying to adjust its course. Its prescription-drug unit stumbled in recent quarters after heavy competition from generic drugs. Novartis also failed to get an important new diabetes drug, Galvus, approved by the U.S. Food and Drug Administration, and had to remove a drug for irritable bowel syndrome, Zelnorm, from the market due to safety concerns. Attempting to fix the problems, Dr. Vasella appointed a new head of prescription drugs late last year and laid out plans to cut 2,500 jobs world-wide to reduce bureaucracy and cut costs.

Novartis, the world's fourth-biggest drug maker, with total sales of $39.8 billion last year, counts among its best-selling products Diovan for blood pressure, Gleevec for various types of cancer, and Trileptal for epilepsy. Based in Basel, Switzerland, it is already active in eye care through its Ciba Vision contact-lens brand. It also sells Lucentis, a drug that treats a severe eye disease that can lead to blindness.

Novartis has made previous moves to push into faster-growing areas of health care. In 2006 it expanded its vaccine business by spending $5.4 billion to buy full control of Chiron Corp. In 2005, Novartis spent $8.4 billion to acquire two generic-drug makers. Novartis also has a unit that sells nonprescription medicines.

Despite these moves, branded prescription drugs made up about 60% of Novartis' total sales last year and remain the company's core business.

Other big pharmaceutical companies have also taken steps to diversify away from prescription drugs. GlaxoSmithKline PLC of the U.K. and Spnofi-Aventis SA of France have invested heavily in vaccines, and Roche Holding AG of Switzerland said this year it would spend $3.4 billion to buy Ventana Medical Systems Inc., a U.S. maker of diagnostic tools.

"Are they diversifying because basically they are having trouble in their core business, or are they diversifying for well-thought-out reasons? Unfortunately in many cases I think it's because they have no choice," says Denise Anderson, a pharmaceutical analyst at Landsbanki Kepler in Zurich. Ms. Anderson was lukewarm on Novartis' decision to buy Alcon.

The mechanics of the deal with Nestlé for Alcon are intricate. Novartis said it expects to buy an initial 25% stake in Alcon in the second half of 2008 for about $11 billion, and to acquire Nestlé's remaining 52% stake for about $28 billion between January 2010 and July 2011. Nestlé wanted a staggered purchase, he said. A Nestlé spokesman declined to comment on that.

Averaging the price it is paying for both pieces of Alcon, Novartis is paying a premium of 13% over Alcon's Friday closing price of $148.44 a share on the New York Stock Exchange.

On Monday, Alcon shares ended trading up 2.19% at $150.63. Novartis shares fell 1.43% to 51.65 Swiss francs, or $51.35, while Nestlé's shares were up 0.98% at 516.50 Swiss francs. Dr. Vasella said he didn't expect any anti-trust hurdles to the deal.

Novartis plans to finance the two-part purchase through internal cash reserves and external borrowing. The company said it will put its ongoing share-buyback program on hold.

Among Swiss acquisitions, the agreement for Alcon surpasses Nestlé's 2001 purchase of U.S. pet food company Ralston Purina for $13 billion. In 2000, Zurich-based UBS AG bought U.S. brokerage Paine Webber for close to $12 billion, while Credit Suisse acquired U.S. securities firm Donaldson Lufkin & Jenrette for a similar price.

Dole Fresh Vegetables appoints De Riggi CEO

Ray De Riggi, former President and CEO for ConAgra's specialty meats division, has taken the helm of president at Dole Fresh Vegetables following the departure of Eric Schwartz, who left the company after 10 years to seek other opportunities.

Also joining De Riggi at the Monterey, Calif.-based based Dole Fresh Vegetables, a subsidiary of Dole Food Company, Inc., is Frank Davis, SVP. Of Operations; and Roger Billingsley, SVP of R&D.

In a statement, De Riggi said he and his new associates will "address innovation in a much more aggressive way on the value-added side of the business - not only in products themselves but also in how they are handled at retail and foodservice." The initial focus "will be on leveraging the Dole name to deliver to consumers what they want today - flavor, quality, safety, variety and nutrition."

Prior to joining Dole, De Riggi spent 10 years in various executive leadership roles for ConAgra Foods Inc., most recently as president/c.e.o. of grocery products, the company's largest profit contributor - before leaving to found Orange County Business Bank in 2005. Prior to joining ConAgra, De Riggi spent 18 years with Pet Inc., in senior level finance, operations and general management posts, including e.v.p. of sales

Davis' career includes senior leadership roles in both operations and general management, with more than 20 years of diverse experience in the industrial, foodservice and retail industries His most recent position was s.v.p./operations for Schwan Food Co. Previously, Davis held various executive positions at ConAgra Foods and Newly Weds Foods.

Billingsley was most recently division v.p. of R&D and scientific affairs for the Abbott Nutrition division of Abbott Laboratories. He has also worked for Kellogg, Nutri/System, Pet Inc. and ConAgra Foods.

Hain Celestial acquires Daily Bread

 

Hain Celestial Group Inc., the nation's largest manufacturer of organic groceries that has shown a large appetite for acquisitions in the last year or so, announced Wednesday that it has bought yet another company, this one a London-based supplier of foods to Buckingham Palace.

Melville-based Hain said it has agreed to acquire Daily Bread Ltd., a producer of prepared foods whose sales last year were about 12 million pounds, or about $24 million.

The purchase price was not disclosed.

Hain, which entered the market in the United Kingdom about two years ago, said the acquisition broadens its existing business there as well as in Europe. Hain also supplies foods for the Linda McCartney meat-free brands in the United Kingdom.

 

Hain said that Daily Bread is an accredited supplier to Buckingham Palace, and to museums, sporting establishments, companies and event caterers.

Timothy J. Roupell, who founded Daily Bread more than 20 years ago, will be executive director, Hain said.

Hain said the acquisition is expected to add to earnings during the company's fiscal 2009 year.

The acquisition is Hain's fourth since a year ago in May.

The company announced in early March that it had agreed to buy two food brands -- MaraNatha and SunSpire and their nut butter manufacturing facility in Ashland, Ore., -- from a Maryland-based investment banking firm. Last December, Hain agreed to buy TenderCare International, a natural diapers distributor and marketer, for $3.4 million in cash. And in May 2007, Hain bought the tofu and meat business of WhiteWave Foods, a unit of Dean Foods Inc.

In February, Hain said sales in its fiscal second quarter, which ended Dec. 31, rose 20 percent, compared with the same period a year ago.

Hain has about 2,000 employees worldwide, including 200 on Long Island, where it is the region's 14th largest company in terms of sales.