The deal was worth about $4.6 billion excluding debt, with Jif peanut butter maker Smucker paying Hostess shareholders $34.25 per share (all figures US$). The cash-and-stock offer represents a premium of 54 per cent on the stock since the day Reuters reported the company was exploring a sale.

Hostess shares have surged 27 per cent since the report about the sale process and were up 19 per cent at $33.49 in early trading on Monday, while Smucker’s shares were down seven per cent as investors viewed the deal as too expensive.

Smucker said the deal, which is expected to close in the third quarter of its current fiscal year, represents adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of about 17.2 times based on its estimate of Hostess Brands’ 2023 results.

Campbell Soup’s recent acquisition of Rao’s sauce maker Sovos Brands represented an adjusted EBITDA multiple of 14.6 times, including run rate savings, and 19.8 times excluding those. The food and tobacco sector currently trades at a 14.4 projected 12-month EBITDA on average, LSEG data shows.

“We can’t say we love this transaction from SJM’s (Smucker’s) perspective. First, the price is high; we are very surprised that SJM (or anyone) is paying this amount,” JPMorgan analysts said in a note on Monday.

Smucker’s bet on Hostess comes as major U.S. packaged food companies look to expand their brand portfolios with pandemic-era fortunes dwindling.

In recent months, the U.S. packaged food industry has seen an uptick in mergers as most of the companies seek to improve volumes by rebranding portfolios after benefits from price hikes started wavering.

Culmination of turnaround

Hostess Brands became an acquisition target after its price hikes boosted revenue but fueled investor concerns over its prospects with its volume growth consistently declining.

The tie-up between Smucker and Hostess follows a spate of other deals in the sector, including Campbell’s $2.7 billion deal for Sovos and Unilever’s purchase of premium frozen yogurt brand Yasso in North America.

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 deal with Smucker represents a major turnaround for Hostess, which has 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 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.

Smucker, which also houses coffee and pet food brands, has a market valuation of over $14 billion and had raised prices of its jams and jellies, which helped boost its profit forecast for the year.

— Reporting for Reuters by Ananya Mariam Rajesh in Bangalore and Anirban Sen and Abigail Summerville in New York; additional reporting by Dimpal Gulwani in Bangalore.

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Michigan-based Kellogg Co. said Tuesday its board has approved a plan to break into three yet-to-be-named independent publicly-traded companies by way of two spinoffs. One would be its ready-to-eat breakfast cereal business for the U.S., Canada and the Caribbean; the other, its plant-based foods business for the same regions.

The company’s remaining worldwide product lines — such as its global snack foods business, its North American frozen breakfast food lines and its international cereals and noodles businesses — would remain with the third company, which would be the biggest in terms of sales.

The global snacking company, which last year booked net sales of $11.4 billion, would include brands such as Pringles, Cheez-It, Eggo, Pop-Tarts and Nutri-Grain, among others (all figures US$).

That business, on its own, is expected to be a “higher-growth” company than today’s Kellogg, the company said, with a more “growth-oriented” portfolio, aided by “more focused resources and attention to brand building, innovation, and international expansion of world-class brands.”

The North American breakfast cereal business, which last year had net sales of $2.4 billion, would include Kellogg’s lone Canadian plant, at Belleville, Ont., where it makes the Mini-Wheats cereal line. Kellogg shut down its other major Canadian breakfast cereal plant at London, Ont. in 2014.

This business’ brand portfolio also includes Corn Flakes, Frosted Flakes, Froot Loops, Special K, Raisin Bran and Kashi, among others. The Rice Krispies cereal brand would remain with the cereal business, while the Rice Krispies Treats product line would go to the snack company.

As a stand-alone company, the North America cereal business would have “greater strategic focus and operational flexibility” and will direct capital and resources toward “unlocking growth, regaining category share and restoring and expanding profit margins.”

In the near term, Kellogg said, the North American cereal spinoff would focus on “the restoration of inventory, profit margins and share position following 2021 supply disruptions.”

The plant-based foods company, with 2021 net sales of about $340 million, would also be focused on the U.S., Canadian and Caribbean markets, as a “leading, profitable, pure-play” firm led by the MorningStar Farms brand of vegan and veggie plant-based foods.

The plant-based business, Kellogg said, marks “a significant opportunity to capitalize on strong long-term category prospects by investing further in North America penetration and future international expansion.”

That said, while it “intends” to spin off the plant-based business, Kellogg added it will consider other alternatives for that business — “including a possible sale.”

Reuters on Tuesday quoted market observers as saying the plant-based business, while profitable, faces a “tough environment” without Kellogg’s support.

Gary Stibel of New England Consulting Group told Reuters “the rate of growth in plant-based is slowing and will continue to slow.” Kellogg CEO Steve Cahillane was quoted as saying last month on a call with analysts that the meat alternatives sector generally was in a state of “irrational exuberance” up until lately.

Kellogg’s two proposed spinoffs would involve tax-free distributions of shares to Kellogg Co. shareholders, who’d get shares in the two spun-off entities on a pro-rata basis relative to their Kellogg holdings.

The North America cereals spinoff is expected to happen before the plant-based spinoff, Kellogg said. The company expects both to be completed by the end of 2023 pending the usual closing conditions and regulatory approvals.

The North America cereals and plant-based spinoffs would both remain headquartered at Kellogg’s current home base at Battle Creek, about 150 km west of Detroit; the global snacking business would be headquartered at Chicago, with a campus at Battle Creek. — Glacier FarmMedia Network

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The proposal is part of a suite of changes proposed for Canada’s Food and Drug Regulations. As well as adding a front-of-packaging (FOP) label requirement for foods deemed by Health Canada to be high in sodium, sugar or saturated fat, amendments would also update nutrient content claims on food labels, increase mandatory vitamin D content of milk and margarine and tighten rules on the use of partially hydrogenated oils.

“It is anticipated that this proposal would improve Canadians’ access to easy-to-use information on foods high in sodium, sugars and/or saturated fat to help reduce excessive consumption of these nutrients,” Health Canada wrote on an information page on the issue.

“There may be positive impacts including reductions in risk of disease due to improved nutrition and health care savings as a result. Some industry stakeholders may choose to reformulate impacted products to avoid a front-of-package nutrition symbol.”

When the department first proposed FOP label rules in 2018, it said raw single-ingredient meats, poultry and fish that aren’t ground would be exempted since those products “are considered less standardized than ground meats, which make deriving accurate nutrient values challenging.”

Whole and partly skimmed milk and whole eggs were also exempted from the proposed rules. The department did note some businesses would incur more costs due to additional labelling.

The Canadian Cattlemen’s Association (CCA) on Wednesday released a statement urging Health Canada to also exempt ground beef. In it, the CCA argued that the policy would treat ground beef differently from “other nutritious foods, such as single-ingredient meat, milk, eggs, vegetables, and fruit.”

“Canadians consume approximately half of their calories from low nutrient, ultra-processed foods,” the statement read. “By contrast, ground beef is a nutrient-dense protein that contributes iron, zinc, and vitamin B12. FOP labelling of whole, single-ingredient foods starkly contrast with the foundational principles of healthy eating and will distract from the real priority — Canadians need to reduce their consumption of ultra-processed foods.”

The CCA argued that the reduction in saturated fat consumption would be “nominal” if ground pork and beef were taken out of the equation, while cooling consumption of those meats might lead to less iron intake and tie into food security issues, given current inflation and food affordability.

The association further argued that other countries with FOP rules have exempted ground beef. “To our knowledge, Canada will be the only jurisdiction in the world placing a health warning label on its ground beef.”

The federal opposition Conservatives on Tuesday aired similar concerns, saying the European Union, Mexico and Israel have all exempted single-ingredient whole foods from similar FOP labelling policies.

The party’s ag critics — MPs John Barlow, Dave Epp and Richard Lehoux — said in a joint statement the government’s decision “will undercut Canadian producers both domestically and abroad.”

The U.S. government, they said, “has already identified this policy as a trade irritant potentially leading to fewer exports of Canadian beef.”

As for the current exemptions, they added, “it doesn’t make sense if roast beef and whole hams are exempt, but the same source of protein is no longer acceptable after being ground.”

Health Canada hopes to have the new rules in force by Jan. 1, 2026.

— By Manitoba Co-ooperator and Glacier FarmMedia Network staff.

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Calgary-based Parkland Corp., which operates fuel and convenience retail chains and bulk fuel distribution businesses in Canada and elsewhere, announced Tuesday it’s signed an agreement to buy M+M Food Market for about $322 million.

The deal, subject to regulatory and other approvals, is expected to close sometime in the first quarter of 2022, the companies said.

M+M opened its first store in Kitchener, Ont. in 1980 under the name M+M Meat Shops and rebranded in 2016 after its 2014 takeover by investment firm Searchlight Capital Partners.

The chain now includes 315 M+M stores in all 10 provinces and two of the three territories. It also supplies its frozen food products to over 2,000 “M+M Express” locations at retailers such as Rexall, Home Hardware and Circle K, and at Parkland-owned convenience store and fuel station chains such as On The Run, FasGas, Ultramar and Pioneer.

Under the Parkland deal, M+M’s brand, leadership, franchise system, store network and head office in Mississauga will “remain in place,” the company said in its release.

Parkland, which already operates chains in the U.S. and Caribbean as well as Canada, totalling about 3,000 outlets, said Tuesday it “will bring scale and complementary leadership strength that will see M+M Food Market continue to grow in Canada while expanding into new international markets.”

Parkland said it aims to grow M+M’s Canadian annual run rate adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to about $55 million in three years.

“After a comprehensive examination of our experience, our products, profitability, dedicated franchise partners impressive store network, and our business strategy, Parkland concluded that M+M will be an essential part of achieving their long-term goals in the food industry,” M+M CEO Andy O’Brien said in that company’s release.

“This acquisition provides a platform to grow our food offer, expand our proprietary brands, and advance our digital and loyalty strategy,” Parkland senior vice-president Ian White said, noting plans to combine the two companies’ rewards programs and also “bringing On The Run and M+M together to help customers make the most of every stop.”

M+M, Parkland said, “will be integral to our growing On the Run network, bolstering our in-store, e-commerce and home delivery offers, and supporting our standalone convenience concept.” — Glacier FarmMedia Network

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