Sweet Deal: Smuckers Gobbles up Hostess Brands

In a major turnaround for Hostess, J. M. Smucker Co. announced it will acquire the maker of Twinkies in a deal valued at $5.6 billion. Smuckers has used the catchphrase “With a name like Smucker’s, it has to be good!” for the last 60 years, but some analysts question whether Hostess’s valuation is too sweet.

The acquisition brings together two storied companies and values Hostess Brands, which touts Twinkies, DonettesDingDongs, CoffeeCakesHoHosMini Muffins among its sweet baked goods brands, at 17.2 times the company’s estimated 2023 results. Smuckers will add these brands to its already extensive line of products, which range from Smuckers jams and Jif peanut butter to Folgers and Dunkin home coffee all the way to Milk-Bone dog treats.

Hostess traces its roots back to a small bakery founded by Robert Ward in Lower Manhattan in 1849. That bakery business grew into Continental Baking, which Ward’s grandson sold to the maker of Wonder bread in 1925. In 1930, the company began selling its sliced bread nationwide while also inventing the Twinkie when a plant manager swapped the strawberries out of the company’s shortcake recipe for a sugar and cream mixture that could be sold year-round. Hostess survived everything from additional acquisitions and even having Twinkies blamed for manslaughter, but in 2004 the owner of Hostess Brands filed for bankruptcy as low carb diets cut into sales.  The company emerged from Chapter 11 in 2009, only to file for bankruptcy again in 2012. The embattled brands reemerged during 2013-2016 to reach the valuation Smuckers has now agreed to pay.

Source: https://www.grandviewresearch.com/industry-analysis/us-packaged-food-market

During the pandemic, packaged food makers benefited as consumers shifted consumption from restaurants to grocery stores and stocked up their pantries with foods with longer shelf lives. As consumers returned to restaurants, high inflation then enabled packaged food makers to raise prices but now “major U.S. packaged food companies look to expand their brand portfolios with pandemic-era fortunes dwindling.” Hostess and Smuckers’s sugary brands continue to face headwinds as consumers shift toward organic, natural, clean, and whole-food products.

J. M. Smucker Co. remains optimistic about Hostess Brands’ future, of course. Mark Smucker, Chair of the Board, President and Chief Executive Officer, states in the companies’ joint press release, “We are excited to announce the acquisition of Hostess Brands, which represents a compelling expansion of our family of brands and a unique opportunity to accelerate our focus on delighting consumers with convenient solutions across different meal and snacking occasions.”

According to Matterhorn’s comprehensive M&A database, which harnesses AI to track current and historical deals, Hostess Brands is represented by law firm Morgan, Lewis & Bockius LLP and J.M. Smucker is advised by Wachtell, Lipton, Rosen & Katz.