Twinkies filled with Smucker’s Jelly may be hitting shelves one day.
JM Smucker’s (SJM) CEO Mark Smucker’s announcement that he plans to acquire Twinkies’ mother company Hostess (TWNK) is “never say never.” $5.6 billion.
According to Smucker, the snack megamerger, which is expected to close in Smucker’s fiscal third quarter, made sense as the company looked to expand its offerings for a specific “snack occasion.”
“[At] At different times of the day, different people want protein-based snacks as opposed to salty snacks, the CEO said. This obviously expands us into a sweet ‘reward myself’ type…snack.
The deal comes at a time when Americans are snacking more frequently. according to Survey from Circananearly half of Americans ate three snacks a day two years ago.
Investors reacted to the news on Monday. JM Smucker stock was down more than 7% in afternoon trading, while host stock was up 18%.
“In our view, the deal is more than appreciated by many, but we recognize concerns about the acquisition price and future growth outlook,” said Barclays analyst Andrew Lazar.
But not everyone on Wall Street was buying the deal, and investors were wary of the valuation.
“Overall, we can’t say we like this transaction relative to SJM,” JPMorgan analyst Ken Goldman wrote in a note. “We are very surprised that SJM (or anyone) is paying this amount.”
From Hosts’ perspective, however, JPMorgan is a proponent of the deal. And a memo from Stifel said Hostess Brands would provide roughly 20% of Smucker’s total revenue and provide “another growth vehicle” beyond Uncrustables in its U.S. business.
As Smuckers looks to round out its portfolio — which includes coffee brands Caffe Bustello, Dunkin’ and Folgers, as well as pet products such as Mew Mix, Milk-Bone and Nutrish — the company’s CEO offered three more reasons why the deal makes sense. :
Expand access to convenience stores and grocery retailers
The acquisition is a two-way street to open up distribution channels, Smucker said.
“It gives us better access to convenience stores,” Smucker said. “Both have built a distribution model that has a large reach but is also profitable.”
The convenience category is something the company is “very excited about” when it comes to frozen sandwich brand Uncrustables, which is expected to generate $800 million in sales this year and become a billion dollar business by 2027.
Goldman said Uncrustables are “produced, shipped and sold on shelves unlike Twinkies,” and Smuckers told Host Guest Buyers that “very few shelf-stable snacks are sold today.”
But Smucker’s CEO suggests that may be changing.
Smucker’s now has a “formula” that can be thawed and still fresh for five days, called Uncrustables, which means the company can sell sandwiches with Hostess products without refrigeration in more places.
Meanwhile, Host now finds JM Smucker’s “very strong” presence in grocery retailers. Smucker said the company “will continue to expand their presence and some of their partnerships.”
Bite-sized indestructible?
The strawberry jelly maker plans to start developing with more innovation.
“Both companies have strong innovation and product development capabilities, but I think we can learn from each other how to create better,” Smucker said.
He added that the company always gets requests for new products, such as bite-sized Uncrustables. With this acquisition, that could be in the future.
“One way is to offer consumers different sizes and smaller products, lower calorie, whatever. [Hostess has] We invented something new and loved that idea,” Smucker said.
Promotion of Hostess brand through marketing
JM Smucker also plans to get more ads in front of consumers for donuts and cupcakes.
“They don’t invest much in consumer marketing and we do,” Smucker said. “We think there is an opportunity to continue to leverage the hosting brand with consumers through marketing and advertising.”
It is worth noting that CFO Tucker Marshall has no plans to lay off any employees or close any production facilities.
“We’re focused on continuing to grow the host portfolio and we’ll go in and learn and evaluate things, but we don’t have [layoff] Plans this time.”
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Brooke DiPalma is a Yahoo Finance reporter. Follow her on Twitter at @Brooke DePalma Or email her at [email protected].
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