US bakers Flowers Foods and Tasty Baking Co. have reached a definitive merger agreement that will see Flowers take 100% control of the struggling Tastykake maker for approximately US$165m.
Under the deal, announced today (11 April), Flowers will acquire all outstanding Tasty Baking shares for $4 per share in cash, plus the assumption of Tasty’s debt.
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Flowers said that the acquisition, which will see it gain the Tastykake brand and two “highly-efficient” bakeries, would strengthen its snack cake business and expand its geographic reach. It is expected to generate “significant” operational cost-saving and revenue synergies, Flowers added.
“Tasty brings a talented, committed team of employees, two highly efficient bakeries, the iconic Tastykake brand, a solid sales base, and an effective distribution system,” said George Deese, Flowers Foods’ chairman and CEO.
“With the addition of Tasty, our snack cake business will be significantly enhanced and we will have a new platform to grow our Nature’s Own brand as we make other acquisitions that add needed production capacity for breads, buns, and rolls,” he added.
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Flowers insisted that the expanded company would benefit from increased category penetration, which is expected to “strengthen” customer relationships. The group plans to grow the Tastykake brand by expanding distribution through Flowers’ current distributors, while Flowers’ brands – such as Nature’s Own – will gain increased distribution through Tasty’s existing routes to market.
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By GlobalDataIn fiscal 2011, Flowers said it anticipates the acquisition to add $115-125m in sales, $10-12m in EBITDA and be neutral to slightly accretive to 2011 EPS, excluding one-time costs. Meanwhile, is fiscal 2012, the addition of Tasty is expected to contribute $210-$225m in revenue, $25-30m in EBIDTA and $0.06-$0.09 in EPS.
The transaction is expected to close during the second quarter of 2011 and is subject to customary closing conditions and approvals, as well as a majority of the outstanding shares of Tasty common stock being validly tendered.
The agreement has been unanimously approved by the Boards of Directors of both companies.
Shares in Tasty Baking closed at $1.61 on Friday. The company’s stock has been hit hard over the past several months by financial difficulties as the group has struggled with rising commodity costs and costs associated with its new bakeries. Its failure to meet loan covenants had prompted lenders to call for the company to strike either a sale or merger agreement.
Commenting on the deal, Tasty president and CEO Charles Pizzi said it would provide “immediate cash value to our stockholders at an attractive premium over the current trading value”.
