I love this artile on Alphaville. It talked about Buffetology and Warren’s latest purchase of the Wrigley company with Mars Incorporated. Run by members of the Wrigley family from 1891 till 2006, it was just sold for 22 billion–a 25% premium to Wrigley’s market price.
I love how many lessons are embedded in this story:
- Innovation–Wrigley’s chewing gum was first a giveaway that came with each can of baking powder sold. Eventually, the gum became more popular than the baking powder itself!
- Stop catering to Wall Street. Yes, it is hard to match the exponential growth of certain internet companies but acquisitions don’t necessarily result in value creation. In fact, some 70% of the M&A that take place don’t create incremental value. (source: Masters of M&A). Wrigley’s has stuck “obsessively” with its core product and when it aquired Altoids and Life Savers in 2004, the stock only moved sideways.
- It highlights Warren’s philosophy on only buying companies that have a “deep moat,” one where an additional $1 million would do little to dent their core competency. Besides, Wrigley’s is quite recession proof!
