J. M. Smucker (SJM) to Acquire Hostess Brands (TWNK) for $5.6B

(Updated - September 11, 2023 8:03 AM EDT)

The J. M. Smucker Co. (NYSE: SJM) announced today the signing of a definitive agreement to acquire Hostess Brands, Inc. (NASDAQ: TWNK) for $34.25 per share in a cash and stock transaction, representing a total enterprise value of approximately $5.6 billion, which includes approximately $900 million of net debt. This represents an adjusted EBITDA multiple of approximately 17.2x based on the Company's estimate of Hostess Brands full year 2023 results, and an approximate 13.2x multiple when including anticipated run rate synergies of $100 million. The acquisition expands the Company's offering of beloved brands in growing categories and accelerates its focus on convenient consumer occasions.

The transaction includes the Hostess Brands sweet baked goods brands (Hostess® Donettes®, Twinkies®, CupCakes, DingDongs®, Zingers®, CoffeeCakes, HoHos®, Mini Muffins and Fruit Pies) and the Voortman® cookie brand, along with manufacturing facilities in Emporia, Kansas; Burlington, Ontario; Chicago, Illinois; Columbus, Georgia; Indianapolis, Indiana and Arkadelphia, Arkansas (which is currently under construction) and a distribution facility in Edgerton, Kansas. Additionally, approximately 3,000 employees will join the Company in conjunction with the transaction.

Compelling Strategic Rationale

Benefits of the transaction include the following:

• Expanding Family of Brands Consumers Love: The acquisition adds Hostess Brands iconic snacks and innovation in the sweet baked goods category to the Company's current offering of beloved brands in the attractive categories of coffee, peanut butter, frozen handheld, fruit spreads, dog snacks and cat food categories.
• Accelerating the Company's Convenient Occasion Strategy: The acquisition positions the Company to deliver on consumer needs across occasions with greater convenience and selection. Further, the Company and Hostess Brands complementary capabilities will drive further growth and innovation.
• Strengthening the Company's Financial Profile: Hostess Brands offers a strong financial profile with a combination of scale and profitability that increases the Company's confidence in delivering on its long-term growth goals and increasing shareholder value.

Executive Comments

"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," said Mark Smucker, Chair of the Board, President and Chief Executive Officer.

"With this acquisition, we are adding an iconic sweet snacking platform; enhancing our ability to deliver brands consumers love and convenient solutions they desire; and leveraging the attributes Hostess Brands offers, including its strong convenience store distribution and leading innovation pipeline, combined with our strong commercial organization and consistent retail execution across channels to drive continued growth. Our organization is well positioned to deliver on the great potential our expanded family of brands offers, as has been reflected by our history of growth through acquisition and the successful integration of new categories to our business. We look forward to this exciting new chapter for The J.M. Smucker Co."

Andy Callahan, President and Chief Executive Officer of Hostess Brands commented, "I am extremely proud of the entire Hostess Brands team for the legacy they created in building a premier snacking company and driving industry leading returns for our investors. Today represents another exciting chapter for Hostess Brands as we combine our iconic snacking brands with The J.M. Smucker Co.'s family of beloved brands. We believe this is the right partnership to accelerate growth and create meaningful value for consumers, customers and shareholders. Our companies share highly complementary go-to market strategies, and we are very similar in our core business principles and operations. Above all else, Hostess Brands and The J.M. Smucker Co. share a deep commitment to inspiring moments of joy and satisfaction through our products, and we look forward to continuing to do so as part of The J.M. Smucker Co. family."

Financial Highlights

The acquisition strengthens the Company's financial profile and provides shareholders significant value by accelerating growth in convenient consumer occasions. Financial highlights of the transaction include:

• Net sales contribution of approximately $1.5 billion, with an estimated mid-single digit percentage annual growth rate.
• Annual run-rate cost synergies of approximately $100 million achieved within the first two years of ownership.
• Adjusted earnings per share expected to be accretive in the first fiscal year.
• Strong cash flow of combined business enables rapid deleveraging, while continuing to reinvest in the business.

Transaction Details

The Company, through its wholly owned subsidiary SSF Holdings, Inc., will commence an exchange offer to acquire all outstanding shares of Hostess at a price of $34.25 per share of Hostess common stock, consisting of $30.00 of cash and .03002 of a share of the Company's common stock (having a value of $4.25 based on the closing price of the Company's common stock on Friday, September 8, 2023) to be exchanged for each Hostess share. The closing of the exchange offer will be subject to certain conditions, including the tender of at least a majority of the outstanding shares of Hostess common stock and other customary closing conditions, including receipt of required regulatory approvals. Upon the successful completion of the exchange offer, the Company will acquire all of the remaining shares of Hostess common stock that were not tendered in the exchange offer through a second-step merger for the same consideration per share as paid in the exchange offer.

The cash portion of the transaction is expected to be funded through a combination of cash on hand, a bank term loan and long-term public bonds. The transaction is not subject to a financing condition. The Company has secured $5.2 billion in a fully committed bridge financing from Bank of America, N.A. and RBC Capital Markets LLC. Pro forma total net debt estimated at the closing date will be approximately $8.6 billion and the pro forma total net debt-to-EBITDA ratio is expected to be approximately 4.4x. The Company intends to maintain its balanced capital deployment model, along with an investment grade debt rating.

The transaction is anticipated to close in the third quarter of the Company's current fiscal year ending April 30, 2024. The transaction has been unanimously approved by the boards of directors of both The J.M. Smucker Co. and Hostess Brands, Inc.

RBC Capital Markets LLC is serving as lead financial advisor to the Company in connection with the transaction. BofA Securities is also serving as financial advisor to the Company. Wachtell, Lipton, Rosen & Katz is serving as the Company's legal advisor.

Conference Call

The Company will host a conference call and webcast with Mark Smucker, Chair of the Board, President and Chief Executive Officer, and Tucker Marshall, Chief Financial Officer, today at 9:00 a.m. Eastern Time. Analysts and investors can participate in the conference call by dialing (877) 407-2991 or if calling from outside the U.S. +1 (201) 389-0925. No access code is required.

A listen-only live webcast of the conference call, as well as a replay, can be accessed at investors.jmsmucker.com.

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