ORRVILLE, OHIO — How convenient for the J.M. Smucker Co. that Hostess Brands, Inc. was interested in a sale. Orrville-based J.M. Smucker on Sept. 11 announced it was acquiring Hostess Brands, Inc., Lenexa, Kan., for approximately $5.6 billion, which includes about $900 million of net debt.
“The acquisition amplifies our existing focus on convenient food occasions,” said Mark T. Smucker, president and chief executive officer of the J.M. Smucker Co. “Hostess is a leader in the sweet baked goods category, and indulgent snacks have experienced 20% faster growth compared to products marketed as healthy alternatives over the past three years. Seventy percent of consumers are eating at least two snacks per day, and consumers choose sweet snacks as a reward, opting for portion control and the convenience of handheld products.”
Hostess’ share price on the Nasdaq closed at $33.49 per share on Sept. 11, which was up 19% from a previous close of $28.11 on Sept. 8 and compared to a close of $22.18 on Aug. 24, the day before Reuters reported Hostess was exploring a sale. The acquisition price showed how the value of Hostess Brands has increased over the past decade. In March 2013, affiliates of Apollo Global Management, LLC and Metropoulos & Co. agreed to pay $410 million for the majority of Hostess’ snack cake business, including Hostess and Dolly Madison branded products, along with five bakeries and certain equipment. Hostess Brands in fiscal-year 2022 had net revenue of $1.36 billion, which compared with $776 million in fiscal-year 2017.
The J.M. Smucker Co. anticipates run rate synergies of $100 million in total in the years 2025 and 2026, said Tucker H. Marshall, chief financial officer.
“The Hostess Brands will benefit from our strong center-of-store execution and strategic customer relationships in the grocery and mass market channels, our industry-leading insight, brand building and marketing expertise, product technology and innovation capabilities and direct-to-warehouse distribution models,” Mr. Smucker said. “The acquisition will also accelerate our growth in convenient food occasions, and it will add significant exposure to our business in the perimeter of retail stores and the highly complementary and strategic convenience channel as 40% of Hostess sales are in the c-store channel.”
The Hostess snack brands will contribute about $1.5 billion of annual net sales and bring pro-forma total company net sales to over $9 billion, Mr. Smucker said. The acquisition includes brands such as Twinkies, Ding Dongs and HoHos and manufacturing plants in Emporia, Kan.; Burlington, Ont.; Chicago; Columbus, Ga.; Indianapolis; and Arkadelphia, Ark.; and a distribution facility in Edgerton, Kan. Hostess employs approximately 3,000.
Hostess Brands shareholders will receive $30 in cash and 0.03002 shares of the J.M. Smucker Co. common stock (valued at $4.25 per share on Sept. 8) for each share of Hostess Brands common stock. The purchase price represents a premium of about 54% to the Hostess closing price of $22.18 per share on Aug. 24, the last trading day prior to Reuters reporting a potential sale. The board of directors for both companies unanimously approved the transaction.
The J.M. Smucker Co. will fund the transaction through a combination of cash on hand, a bank term loan and long-term public bonds. The company has secured $5.2 billion in a fully committed bridge financing from Bank of America, N.A. and RBC Capital Markets, LLC.
“In summary, the addition of the Hostess Brands is well aligned with our strategy of leading in attractive categories,” Mr. Smucker said. “We are excited about entering the fast-growing sweet baked goods category with Hostess iconic brands. Smucker and Hostess have complementary capabilities that will drive further growth and innovation. Smucker’s history demonstrates our ability to successfully integrate large acquisitions, and this transaction strengthens our financial profile, increases our conviction on delivering our long-term growth algorithm and brings significant value to our shareholders.”The stock price for the J.M. Smucker Co. on the New York Stock Exchange closed at $131.66 per share on Sept. 11, which was down 7% from a previous close of $141.58 on Sept. 8.