In a bold move that marks the latest in a series of acquisitions by major food companies, J.M. Smucker, renowned jelly maker, has confirmed a $5.6 billion buyout of Twinkie manufacturer Hostess Brands. This deal, priced at $34.25 per share, includes $30 in cash and .03002 shares of Smucker’s stock for each share of Hostess, and comes with an agreement to shoulder Hostess’s debt. This transaction is anticipated to be finalized in Smucker’s fiscal third quarter, ending in January.

The food industry has been witnessing a flurry of deals as Big Food hunts for growth opportunities amid diminishing pandemic gains. This trend was recently underscored by Campbell’s Soup’s $2.7 billion acquisition of Sovos Brands, the owner of Rao’s pasta sauce. Other noteworthy deals include Mars’ purchase of Kevin’s Natural Foods and Unilever’s acquisition of frozen yogurt brand Yasso earlier this year. However, the Smucker-Hostess deal stands out due to the significant market value and iconic stature of the Twinkie brand.

J.M. Smucker Acquires Hostess Brands for $5.6 Billion

In a significant move to consolidate its position in the food industry, jelly maker J.M. Smucker is set to acquire Twinkie owner Hostess Brands. The deal, which is valued at $5.6 billion or $34.25 a share, will see Hostess shareholders receive $30 in cash and .03002 shares of Smucker’s stock for each share of Hostess they own. Additionally, Smucker has agreed to shoulder Hostess’s debt. The deal is slated to close in Smucker’s fiscal third quarter, which ends in January.

Hostess Brands’ Share Price Climbs Following Announcement

Following the announcement, Hostess’s shares climbed by 18% in premarket trading on Monday. However, Smucker’s stock fell by 7.5%. As of Friday’s close, shares of Hostess stock have risen 25% this year, pushing the company’s market value to $3.73 billion. The company’s shares had received a significant boost in late August after Reuters reported that it was considering a sale after fielding interest from large food companies, including PepsiCo and Oreo maker Mondelez International.

Hostess Brands’ Sales and Market Position

Hostess saw a dip in demand for its Twinkies and Ding Dongs after raising prices to counter higher commodity costs, sparking investor concern and takeover interest from larger rivals. The company anticipates that its volume will decline for the full year, prompting executives to pause price hikes. The sale to Smucker ends Hostess’s seven-year streak as an independent, publicly traded company. The company went public in 2016 through a merger with a special purpose acquisition company.

Hostess Brands’ Revival and Future Prospects

Just three years prior to going public, Apollo Global Management and Metropoulos & Co. resurrected the company, ending a monthslong Twinkie drought after acquiring the assets of the company formerly known as Interstate Bakeries. The acquisition by Smucker is the latest in a series of deals by Big Food, which is seeking growth opportunities as pandemic gains start to fade. Recent deals in the sector include Campbell’s Soup’s acquisition of Rao’s pasta sauce owner Sovos Bands for $2.7 billion, Mars’s purchase of Kevin’s Natural Foods, and Unilever’s acquisition of frozen yogurt brand Yasso.

Takeaways

The acquisition of Hostess Brands by J.M. Smucker underscores the consolidation trend in the food industry, as big players look for growth opportunities. However, the deal also highlights the challenges faced by companies like Hostess, which have had to grapple with higher commodity costs and fluctuating demand. It remains to be seen how Smucker will leverage this acquisition to bolster its position in the market and navigate these challenges.