Twinkies Maker Hostess to Go Public in Deal With Alec Gores

Hostess Brands LLC, the maker of Twinkies and Ding Dongs, plans to become a publicly listed company, marking a revival for an iconic American baker that just three years ago was facing liquidation.

The company will go through a complex deal on its route to becoming public, with investors including Alec Goress firm ponying up $725 million. The bakers current owners — private equity firm Apollo Global Management LLC and investor Dean Metropoulos — will own 42 percent of the new company, which will be renamed Hostess Brands Inc.

The deal marks a comeback for a brand that was close to extinction before Apollo and Metropoulos bought it out of bankruptcy in 2013. Hostess was founded in 1919 and gained popularity with its cream-filled, swirled-icing cupcakes. In 1930, the company introduced Twinkies, a snack that became a mainstay of American supermarkets and popular culture.

Hostess presents a unique opportunity to invest in an iconic brand with strong fundamentals that is poised for continued growth, Gores Group Chairman and CEO Alec Gores said in a statement.

Hostess Value

An acquisition vehicle linked to Gores Group LLC will provide $375 million to the deal, and other investors have committed $350 million in a private placement, the companies said in the statement Tuesday.

Metropoulos will continue to serve as executive chairman, and William Toler will remain chief executive officer after the deal is completed, which is expected in the third quarter. Gores said the new company will have an initial enterprise value of about $2.3 billion, 10.4 times its forecast 2016 adjusted operating profit of about $220 million. The company had about $650 million in revenue in the year ended May 31.

While Twinkies have strong brand recognition, taking Hostess public will test investors appetite for a company that trades in the kind of processed sugary treats that Americans are increasingly trying to avoid. That trend took a toll on Hostess in recent years, contributing to the companys two bankruptcies in the past decade.

Hostess emerged from bankruptcy in 2009 under the control of buyout firm Ripplewood Holdings LLC and lenders. Previously known as Interstate Bakeries Corp., the company changed its name to Hostess Brands that year.

Bankruptcy Rescue

When Hostess again went under roughly three years later, Apollo and Metropoulos came to the rescue, paying as much as $410 million for the name. The new owners resumed production and expanded distribution, officially returning Twinkies to store shelves in 2013 after a seven-month hiatus. The Metropoulos family, which has purchased other American brands such as Pabst beer, dubbed the bakers revival the sweetest comeback in the history of ever.

For the deal announced Tuesday, Deutsche Bank AG acted as lead capital markets adviser, along with Moelis & Co. and Morgan Stanley. Weil, Gotshal & Manges provided legal advice to Gores. Rothschild & Co., Credit Suisse Group AG and Perella Weinberg Partners acted as advisers to Hostess. UBS acted as financial adviser to C. Dean Metropoulos and his family, while Paul, Weiss, Rifkind, Wharton & Garrison provided legal advice. Morgan, Lewis & Bockius acted as legal adviser to Apollo.

Next Chapter

Hostesss next chapter takes place as the U.S. food industrys sales and profit are slumping. Consumers are seeking out fresh and natural options, shifting away from processed grocery staples that dominated store shelves for decades. Changing consumer tastes have been hard on big packaged-food makers, with sugar in particular targeted as a health hindrance by U.S. consumers.

Its not in tune with where customers are going, said Ken Shea, an analyst at Bloomberg Intelligence. There will be a high level of scrutiny on their ability to grow.

Regardless of the headwinds facing sweet snacks, Hostess plans to double down on indulgence, according to Toler. The company has improved the shelf life of Twinkies and will introduce frozen varieties to grocery stores later this year, seeking to capitalize on the rise of snacking in the U.S. Hostess expects sales to grow 11 percent this year to $722 million, with an 8 percent bump forecast for 2017, the company said in a presentation.

Emotional Connection

Hostess has an incredible brand power, Toler said on a conference call Tuesday. It has an amazing emotional connection with consumers.

Another deal for a maker of sweet snacks also is percolating, with weakness at Hershey Co. making that company a takeover target. Mondelez International Inc. said last week that it had made a bid for the chocolate maker, which Hershey rejected.

Despite foodmakers troubles, the uncertainty surrounding the recent Brexit vote and the U.S. election make the companies an attractive investment opportunity, Shea said. The Standard & Poors 500 packaged-food index had gained 14 percent this year through last week, compared with a 2.9 percent gain for the larger S&P 500.

This is a vote of confidence that packaged food is an attractive place for investors, Shea said. Its traditionally viewed as a place that money flocks to in times of uncertainty.

(A previous version of this story was corrected to fix the name of Apollo Global Management LLC)


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