JM Smucker to buy Twinkie maker Hostess Brands in $5.6 billion deal

Sep 11 (Reuters) – JM Smucker (SJM.N) on Monday agreed to buy Twinkies maker Hostess Brands (TWNK.O) for $5.6 billion, including debt, in an agreement that unites two major American snack manufacturers.

The deal was worth about $4.6 billion excluding debt, and Jif peanut butter maker Smucker paid Hostess shareholders $34.25 per share. The cash and stock offer represents a 54% premium over the stock since the day Reuters reported the company was exploring a sale.

Hostess shares have risen 27% since the divestiture report and were up 19% to $33.49 in early trading Monday, while Smucker shares fell 7% as investors felt the agreement was too expensive.

Smucker said the deal, which is expected to close in the third quarter of its current fiscal year, represents adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of about 17.2 times based on its estimate of earnings results. Hostess Brands by 2023.

campbell soup (CPB.N) Rao’s recent acquisition of sauce maker Sovos Brands (SOVO.O) It represented an adjusted EBITDA multiple of 14.6 times, including run rate savings, and 19.8 times excluding them. The food and tobacco sector is currently trading at a projected 12-month EBITDA of 14.4 on average, LSEG data shows.

“We can’t say we like this transaction from SJM’s perspective. First of all, the price is high; we are very surprised that SJM (or anyone else) is paying this amount,” JPMorgan analysts said in a note on Monday.

Smucker’s bet on Hostess comes as major U.S. packaged food companies look to expand their brand portfolios in the face of declining pandemic-era fortunes.

In recent months, the American packaged food industry has seen a upturn in mergers, as most companies look to improve volumes by renaming their portfolios after the benefits of price increases began to falter.

CULMINATION OF CHANGE

Hostess Brands became a takeover target after its price increases boosted revenue but fueled investor concerns about its prospects as its volume growth steadily declined.

The alliance between Smucker and Hostess follows a series of other deals in the sector, including Campbell Soup’s $2.7 billion deal for Sovos Brands and Unilever. (ULVR.L) purchase of the premium frozen yogurt brand Yasso in North America.

Headquartered in Lenexa, Kansas, Hostess was founded in 1930 and is behind several iconic household brands, including Ho-Hos cookies and wafers, Ding Dongs, Zingers and Voortman.

The deal with Smucker represents a major change for Hostess, which filed for bankruptcy twice, in 2004 and 2012, due to a combination of private equity owners that saddled it with debt and failed to create new snacks that appealed to consumers.

Businessman Dean Metropoulos and private equity firm Apollo Global Management Inc. (APO.N) Hostess returned to the stock market in 2016 through a deal with a special purpose acquisition company backed by the private equity firm founded by Alec Gores.

By the end of 2020, Hostess had revamped its portfolio and was generating more than $1 billion in revenue, a major milestone in its turnaround efforts. It has managed to maintain revenue growth, sometimes raising prices as sales volumes weakened.

Smucker, which also houses coffee and pet food brands, has a market valuation of more than $14 billion and had increase prices of its jams and jellies, which helped boost its profit forecast for the year.

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