Hostess Brands Inc, the maker of Twinkies snack cakes, is considering a sale following interest from major snack food companies, according to sources familiar with the matter. The company’s decision to raise prices on some products to boost revenue has raised concerns among investors about its future prospects. Prior to the news of a potential sale, Hostess shares had declined 1% year-to-date, while the Nasdaq Composite Index had risen 29%.
Several companies, including General Mills Inc, Mondelez International Inc, PepsiCo Inc, and Hershey Co, have expressed interest in acquiring Hostess. To navigate the deal negotiations, Hostess has enlisted the services of investment bank Morgan Stanley. However, no agreement has been reached yet, and Hostess may ultimately decide against a sale.
The sources requested anonymity due to the confidential nature of the matter. Hostess and Hershey declined to comment, while General Mills, Mondelez, PepsiCo, and Morgan Stanley did not immediately respond to requests for comment.
Upon news of the potential sale, Hostess shares surged 26% to $27.89, resulting in a market value of nearly $4 billion. As of the end of June, the company also had approximately $900 million in net debt.
Founded in 1930 and headquartered in Lenexa, Kansas, Hostess is known for iconic brands such as Ho-Hos, Ding Dongs, Zingers, and Voortman cookies and wafers. The company has faced bankruptcy twice in the past, in 2004 and 2012, due to excessive debt and a lack of consumer appeal for new snacks.
In 2016, entrepreneur Dean Metropoulos and private equity firm Apollo Global Management Inc brought Hostess back to the stock market through a deal with a special purpose acquisition company. Since then, Hostess has undergone a turnaround effort, achieving over $1 billion in revenue by the end of 2020. The company has managed to sustain revenue growth by occasionally raising prices despite weakening sales volumes.
In the second quarter, Hostess reported net revenue of $352.4 million, a 3.5% increase compared to the previous year. Gross profit also rose by 11.8% to $126.0 million.
The article was written by Anirban Sen and Abigail Summerville in New York and edited by Chris Reese and Marguerita Choy. Anirban Sen is the Editor in Charge for U.S. M&A at RushHourDaily, while Abigail covers consumer and retail deals.
