Curiously expensive

15 November 2004 By Rob Cox Follow @rob1cox

But how Wrigley can justify paying three times sales for the business while retaining its market premium is hard to fathom. The curiously high price bodes well for Kraft and parent Altria’s streamlining plans.

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Kraft Foods said it will sell most of its sugar confectionery business to Wm. Wrigley Jr. Co. for approximately $1.5 billion. The proposed sale includes the Life Savers, Creme Savers, Altoids, Trolli and Sugus brands, which represent about 1.5% of Kraft's global revenues.

Roger K. Deromedi, Kraft's chief executive, said the "divestiture is part of our strategy to transform Kraft's portfolio. By enabling us to better focus our resources, the sale should create value for Kraft, as well as our employees, customers and shareholders."

The sale, to be completed in 2005, includes sugar confectionery manufacturing facilities in the US, UK and Romania and will affect 700 workers.

It will generate aftertax cash proceeds of approximately $1bn for Kraft, and is expected to result in an aftertax book loss of approximately $370m ($.22 per share). The contribution to earnings from this business in 2004 is estimated at $.05 per share on revenues of approximately $490m; after the closing, a portion of this contribution will be offset by the use of the cash provided by the sale.

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