Mars-Wrigley Merger May Cut Costs

A merger of confectionery giants Mars and Wrigley could help them cut distribution costs in Russia, where they control a combined six production units, analysts said Tuesday.

Mars and Wrigley agreed to merge in a $23 billion deal that will leave Wrigley a stand-alone subsidiary of Mars, the firms announced Monday. The transaction will create the world's largest confectionery company.

Mars, a maker of confectionery, food and pet-food products, has four factories in Russia, mostly around Moscow. One of them produces chocolate bars in Stupino, 100 kilometers south of the city. Two other Moscow region factories make dog food and cat food in the town of Luzhniki and ready soups in Lukhovitsy. One more factory churns out dog and cat food in Novosibirsk.

Wrigley runs a gum-making plant in St. Petersburg and owns 80 percent in the Odintsovo-based chocolate maker A. Korkunov.

Mars' spokeswoman in Moscow, Larisa Inozemtseva, said the local office would not comment on the deal's effect in Russia. "You are distracting me a lot," she told a reporter.

A spokeswoman for Wrigley in Moscow did not return a call seeking comment by press time.

The combined company could "substantially" reduce its spending on distribution and personnel if they operated their warehouses and deliveries from a single center, said Andrei Verkholantsev, an analyst at Atlanta Capital brokerage.

"Labor force costs have been rising if we speak about Russia," he said.

The companies' production units supply both Russia and the other former Soviet republics, he said.

Oleg Tkachev, marketing director at Soldis Communications Agency, agreed that the companies would save money if they teamed up in distribution of products that they display at the same spots in stores. Mars and Wrigley display chocolate bars and chewing gum, respectively, near cash machine terminals.

The merger seeks to put in one pocket the money that shoppers spend on such items, Tkachev said. "If a person wants to chew something, his choices will be from the range of one and the same corporation," he said.

Billionaire Warren Buffett, who joined forces with Mars in buying Wrigley, will own a stake of more than 10 percent in Wrigley through Berkshire Hathaway. Buffett's other food holdings include a stake in Kraft Foods, which is a rival of A. Korkunov in Russia.