Mars, the world’s largest candy maker, announced in early October 2016 that it will buy out the minority stake held by Berkshire Hathaway in Wrigley, a Mars subsidiary, as part of its long-term plan to integrate Wrigley with its Mars Chocolate operations rather than continuing to operate the two segments separately.
Mars’ move to buy out Berkshire Hathaway comes as no surprise in Wrigley’s original shareholder agreement, which was put in place after Berkshire Hathaway facilitated Mars’ $23 billion takeover of Wrigley in 2008, provided that Mars would have an opportunity in 2016 over a specified ninety-day period to repurchase half of Berkshire Hathaway’s approximately $2.1 billion preferred stake in Wrigley, for which it has been receiving a an annual 5% dividend. The shareholder agreement also afforded Mars the option to repurchase the remaining half of Berkshire Hathaway’s stake in Wrigley in 2021. However, because both parties agreed, Mars will now repurchase Berkshire Hathaway’s entire stake in Wrigley in 2016.
Though the above example focuses on two multi-billion dollar companies, it underscores the importance of shareholders entering into a buyout agreement or including a buyout provision in its shareholder agreement. In addition to allowing the parties to specify time periods in which shareholders can buy each other out, buyout provisions can also specify particular circumstances that can allow for the buyout of a shareholder. These circumstances can include a shareholder’s retirement or resignation, divorce, personal bankruptcy, incapacitating event, or even death. Furthermore, some shareholders prefer to use a buyout provision to include what is commonly known as a shotgun clause, which is typically a clause that allows one shareholder to offer to purchase, at a determined price, the shares of another shareholder, who then must either accept the other shareholder’s offer or buy out the other shareholder at the same determined price. Shotgun clauses are particularly useful when a business or personal relationship between shareholders has significantly deteriorated and one or both shareholders want to move forward without the other.
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