TWNK Stock: J.M. Smucker Is Set to Buy Up Twinkies Maker Hostess Brands in Megabucks Deal
Key takeaways
- J.M. Smucker has agreed to buy snacks company Hostess Brands for $5.6 billion
- The deal is a 54% premium on Hostess’ share price in August
- Smucker’s stock dropped as much as 10% at the news, but Hostess saw as much as a 19% gain during Monday’s trading
Hostess Brands, the maker of the beloved Twinkie, is set to be acquired by J.M. Smucker in a $5.6 billion tie-up that unites two major snack companies. The deal is excellent for Hostess, but analysts must have been wondering why Smucker is paying so much for the company.
Smucker would argue the deal puts it further into the grocery-store aisles market it’s trying to break into, with snacks a serious growth market with the American consumer. Here’s a snack-sized update on the acquisition and how the markets reacted to the news.
What’s happening with Hostess Brands?
J.M. Smucker, home of Jif peanut butter and other household name products, is buying up Twinkie producer Hostess Brands for a cool $5.6 billion, including debt. Without debt, the deal is worth $4.6 billion. The cash-and-stock offer is a 54% premium on Hostess Brands’ stock on August 25, when the sale was first reported.
The acquisition is expected to be completed in early 2024, pending regulatory approval. Smucker expects Hostess to add around $1.5 billion extra in annual sales with an anticipated mid-single-digit percentage annual growth rate.
CEO Mark Smucker said the deal pushed the company into the fast-growing snacks industry, further increasing Smucker’s presence in the supermarket aisles outside its core products like jams and jellies.
In a conference call, Smucker also pointed out that indulgent snacks had experienced 20% faster growth than snacks labeled as healthy and that 70% of consumers eat at least two snacks daily. He’s not wrong — research firm Circana Group found that snack sales soared to $181 billion last year.
How did Wall Street react?
It was an excellent day for Hostess Brand’s stock, which skyrocketed as much as 19% on Monday before closing 17.3% higher. This year, the company has seen a 50% increase in its share price and is currently trading for $33.49.
The stock has seen a real comeback, given that Hostess previously faced two Chapter 11 bankruptcies. Perhaps that recent history has caused pessimism on Wall Street, but investors should remember that Hostess Brands stock has grown 176% in five years.
However, it wasn’t the same story for J.M. Smucker. The stock cratered 10% in early trading after Wall Street deemed the deal too expensive, eventually finishing Monday trading 7% lower at $131.66.
Investors may have to trust the process. Smucker did a similar deal in 2015 when it bought pet food business Big Heart Pet Brands, producer of Milk-Bone dog treats and Meow Mix cat food, for $3.2 billion, which has since paid off.
The bottom line
Investors might believe J.M. Smucker is paying too much for Hostess Brands, but the CEO believes in the deal and recognizes the opportunity in the bursting snacks market. As for Hostess, which has apparently been looking for a buyer for some time, it’s good news all around for the future of Twinkies, Ho Hos and Ding Dongs.
