Hostess acquires certain Aryzta breakfast assets

by Eric Schroeder
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Cloverhill Bakery, Hostess
Hostess has acquired the Big Texas and Cloverhill brands from Aryzta.
 

KANSAS CITY — Hostess Brands, Inc. has acquired certain U.S. assets of Aryzta L.L.C., including one of the company’s Chicago Cloverhill bakery facilities and its Big Texas and Cloverhill brands. Additionally, the transaction includes supply partnerships with some of Hostess’ key retailers.

Financial terms of the transaction were not disclosed.

C. Dean Metropoulos, Hostess
Dean Metropoulos, executive chairman of Hostess

“This is an excellent enabling acquisition for the Hostess breakfast strategy and fills a key strategic gap in our product portfolio,” said Dean Metropoulos, executive chairman of Hostess. “The Big Texas and Cloverhill brands and private label partnerships will add significant strength to our growing breakfast business.”

In acquiring the Big Texas and Cloverhill brands, Hostess said it is gaining distribution strength that will give the company greater access to the club, vending, cash-and-carry and independent convenience stores sales channels. The transaction also significantly expands the Hostess range of offerings in the sweet baked goods category and should reduce the baker’s reliance on co-manufacturing, Hostess said.

The acquisition also includes inventory, property, plant, equipment and customer relationships serviced by Aryzta’s Chicago Cloverhill bakery. The 137,000-square-foot facility is the largest individually-wrapped Danish pastry facility in North America.

William Toler, Hostess
William Toler, president and c.e.o. of Hostess

“This strategic acquisition allows us to bring important product manufacturing in-house as we expand and drive growth in our breakfast product portfolio,” said William Toler, president and chief executive officer of Hostess. “In addition, this purchase will enable Hostess to forgo in-house capital investments and create significant value over the next few years.”

Andrew Jacobs, chief operating officer of Hostess, said the company has had a long supply relationship with Aryzta in the breakfast category, and the acquisition of the Big Texas and Cloverhill brands should broaden the company’s participation in a number of distribution outlets.

Andrew Jacobs, Hostess
Andrew Jacobs, c.o.o. of Hostess

“This acquisition will enhance our competitive position as we have the opportunity to further build our branded distribution and market share in the breakfast category within sweet baked goods, as well as enhance new and existing retailer relationships, particularly in the complementary club and vending sales channels,” Mr. Jacobs said.

Hostess said it expects short-term EBITDA losses of approximately $15 million to $20 million in connection with the transaction. The company also said it expects to incur corresponding earnings-per-share dilution of approximately 10c to 12c as a result of anticipated operating losses from the acquired business through the second half of 2018 as Hostess improves the sales and operating performance of the Chicago Cloverhill facility.

The acquired business is expected to be EBITDA positive in the first half of 2019, and by 2020 Hostess expects the acquired business to contribute approximately $20 million to $25 million in EBITDA.

Zurich, Switzerland-based Aryzta acquired Cloverhill Bakery in 2014. Last year, lack of proper immigration documentation forced about 800 workers to leave Aryzta’s two Cloverhill Bakery facilities. The issue, which required the hiring and training of new workers (equating to a third of the workforce at the plants), had a negative effect on Aryzta’s financial results in the fourth quarter of fiscal 2017 and the first quarter of fiscal 2018. 
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