Bakery company Flowers Foods Inc. is to buy Tasty Baking Co. for $34.4 million in a cash deal that boosts its presence in the mid-Atlantic region and bails out the debt-laden maker of Tastykakes.
Flowers Foods, which makes Nature's Own bread, will pay $4 a share, a premium of 148 percent to Tasty Baking's closing share price on Friday.
"By our math, Flowers paid roughly 7-8 times 2011 estimated EBITDA for Tasty, which is in line with previous deals in the baked foods space," SunTrust Robinson Humphrey analyst William Chappell wrote in a client note.
Deals in the snack food sector over the past year include the acquisition of Pringles by Diamond Foods from P&G and the merger of Lance Inc. with privately held peer Snyder's of Hanover Inc.
Tasty Baking, which sells its cakes, donuts, pretzels and brownies under the Tastykake, Kandy Kakes and Krimpets brands, is a near 100-year-old company known for its advertising jingle "Nobody bakes a cake as tasty as a Tastykake."
In January, the Philadelphia, Pennsylvania-based company said it was looking at options, including a possible sale, after facing a liquidity crunch. Its shares have dived about 75 percent this year.
Thomasville, Georgia-based Flowers, led by CEO George Deese, a 47-year company veteran, has grown through 11 acquisitions over the past decade. This latest deal expands its geographic reach by adding about 24 million customers.
Tasty Baking will increase Flowers' market access to about 61 percent of the U.S. population, the companies said in a statement, and will add $115-$125 million to Flowers Foods' 2011 sales, which analysts estimate at close to $2.7 billion.
In a client note, KeyBanc Capital Markets analyst Akshay Jagdale predicted Flowers would continue on its M&A track. "We don't expect this deal to be the last," he wrote.
Shares of Flowers were up nearly 3 percent at $28.42 on the New York Stock Exchange on Monday — their highest in about two-and-a-half years.
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