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Hostess became an acquisition target after it raised prices on
some of its products to boost revenue, fueling investor concerns
over its prospects. Prior to the news of the company exploring a
sale, its shares were down 1% year-to-date, versus a 29% rise in
the Nasdaq Composite Index.
General Mills Inc, Mondelez International Inc, PepsiCo Inc and
Hershey Co are among the companies that have shown an interest
in acquiring Hostess, the sources said.
Hostess has hired investment bank Morgan Stanley for advice on
handling the deal negotiations, the sources said. No agreement
is certain and Hostess may decide against any deal, the sources
added.
The sources asked not to be identified because the matter is
confidential. Hostess and Hershey declined to comment, while
General Mills, Mondelez, PepsiCo and Morgan Stanley did not
immediately respond to requests for comment.
Hostess shares rose 26% on the news to $27.89 in Friday
afternoon trading in New York, giving the company a market value
of close to $4 billion. Hostess also had debt net of cash of
about $900 million as of the end of June.
Based in Lenexa, Kansas, Hostess was founded in 1930 and is
behind several iconic household brands, including Ho-Hos, Ding
Dongs, Zingers, and Voortman cookies and wafers.
The company filed for bankruptcy twice, in 2004 and 2012, due to
a combination of private equity owners saddling it with debt and
failing to come up with new snacks that appealed to consumers.
Entrepreneur Dean Metropoulos and private equity firm Apollo
Global Management Inc returned Hostess to the stock market in
2016 through a deal with a special purpose acquisition company
backed by the private equity firm founded by Alec Gores.
By the end of 2020, Hostess had revamped its portfolio and was
generating revenue of over $1 billion, an important landmark in
its turnaround efforts. It has managed to keep its revenue
growing, sometimes by raising prices as sales volumes weakened.
Hostess reported net revenue of $352.4 million in the second
quarter, up 3.5% year-on-year. Gross profit increased 11.8% to
$126.0 million.
(Reporting by Anirban Sen and Abigail Summerville in New York;
Editing by Chris Reese and Marguerita Choy)
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