Hostess Brands, Inc. TWNK has signed a definitive agreement with The J.M. Smucker Co. SJM for the sale of its outstanding shares in a $5.6-billion cash and stock transaction, marking a pivotal moment in the evolution of both companies. The move will also reshape the landscape of the snacking and convenience food industry.

Under the terms of the agreement, Hostess Brands shareholders will receive $30 in cash and 0.03002 shares of The J.M. Smucker common stock (valued at $4.25 as of Sep 8, 2023) for each share of the Hostess Brands common stock.

The combination of cash and stock equates to a purchase price of $34.25 per Hostess Brands share, representing an impressive premium of about 54% to the closing price of $22.18 on Aug 24, 2023, just before the news of the potential acquisition deal surfaced.

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What’s More?

The J.M. Smucker will initiate the exchange offer to acquire all outstanding shares of Hostess Brands through its subsidiary SSF Holdings, Inc. Shareholders will receive the agreed cash and stock consideration for each Hostess Brands share subject to customary closing conditions and regulatory approvals. The funding for the cash portion will be a combination of existing cash reserves, a bank term loan and long-term public bonds.

Notably, the boards of directors of The J.M. Smucker and Hostess Brands have approved this deal. The transaction is expected to close in the third quarter of The J.M. Smucker's fiscal year ending on Apr 30, 2024.

Wrapping Up

The partnership with The J.M. Smucker marks an exciting new chapter for Hostess Brands. The merger aims at accelerating growth and delivering value to consumers, customers and shareholders.

This acquisition is likely to expand TWNK’s brand portfolio, and provide the opportunity to enhance consumer delight across meal and snacking occasions. Also, it fortifies Hostess's presence in the sweet snacking category and leverages its strengths, including the robust convenience store distribution network and a leading innovation pipeline.

Shares of Hostess Brands have railed 38.1% in the past six months against the industry’s decline of 9.8%. The company currently carries a Zacks Rank #3 (Hold).

Two Solid Picks

We have highlighted two better-ranked stocks, namely MGP Ingredients, Inc. MGPI and McCormick & Company MKC.

MGP Ingredients produces and markets ingredients and distillery products to the packaged goods industry. The company currently sports a Zacks Rank #1 (Strong Buy). It has an expected EPS growth rate of 11% for three-five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and EPS suggests growth of 5.8% and 10.4%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of around 18%, on average.

McCormick, a manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2 (Buy). The company has an expected EPS growth rate of 7.5% for three-five years.

The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of 6.4% and 5.1%, respectively, from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 4.2%, on average.