Warren Buffett Similing This Morning

Posted by Bull Bear Trader | 4/28/2008 03:46:00 PM | , , , , | 0 comments »

Warren Buffett was smiling this morning on CNBC while announcing his role (and that of Berkshire Hathaway) in helping Mars Inc. buy Wrigley. Berkshire will be contributing about $6.5 billion to help with the acquisition. What does Buffett get in return? The $6.5 billion consist of $4.4 billion of subordinated debt to help Mars pay for the acquisition, along with a $2.1 billion equity stake in Mars after the deal closes, with the shares being bought at a discount. Just another version of the "golden rule" - those with the gold make the rules. On the other hand, a nice premium is being paid for Wrigley, something that Buffett usually tries to avoid, although he has paid-up a few times to get a strong name. At least here he is getting a discount on the premium (if that makes sense).

Of course, everything may not be as sugar coated as the company's products. A combined Mars - Wrigley will control a large segment of the confectionery market, creating a "global powerhouse" to use the WSJs words. It will be interesting to see if this becomes an anti-trust concern. After all, regulators do not have anything else to work on right now, so making sure the chocolate and sugar markets are not being cornered should be a priority.

Finally, the real story may have been the fact that Goldman Sachs was willing to step up to the plate and fund the merger to the tune of $5.7 billion. Not a big risk or huge numbers for Goldman (interesting how $5.7 billion is not considered huge anymore), but certainly big enough to show up on the financial statements. Personally, I kind of miss Merger Mondays. It always starts the week off with a little momentum. Not sure this is the blockbuster that will break the trend, given that Berkshire was needed to co-sign the loan, but it is a start.

Tickers: WWY, BRK.A (for those driving Mercedes), BRK.B (for the rest of us)