The twisty road traveled by America’s iconic snack maker will take another turn with a plan to give the public a chance to buy stock in Kansas City-based Hostess Brands.
The move, announced Tuesday, is expected to be valued at $2.3 billion and indicate whether the public has a taste for the stock beyond its appetite for Hostess CupCakes, Twinkies and other Hostess bakery snacks.
The change is expected in the third quarter this year, about four years after Hostess assets were bought out of bankruptcy proceedings.
Hostess said it has entered into an agreement with Gores Holdings Inc., a “special purpose acquisition company,” to take the company public. The Gore entity will put $375 million into the deal, and other investors have committed $350 million.
Those investors include the company’s current owners, private investors Apollo Global Management and Metropoulos & Co. They will hold a 42 percent stake in the public company, which will be renamed from Hostess Brands LLC to Hostess Brands Inc.
The principal officers said in a conference call that they expected to file the merger proxy with the Securities and Exchange Commission within a few weeks. Gores Holidings is traded on the Nasdaq.
The Metropoulos and Apollo partnership paid about $410 million to buy five of the former Hostess snack cake bakeries after the company filed for bankruptcy. The reorganized Hostess now operates three of the snack cake bakeries, including one in Emporia, Kan., which came back on line in mid-2013 and is considered the company’s flagship plant.
Out of the same bankruptcy proceedings in 2013, Flowers Foods, a publicly owned baking company based in Georgia, paid $355 million to acquire 20 closed Hostess bread and bun bakeries, one of which has returned to operation in Lenexa, producing bread and buns under the Wonder, Nature’s Own, Home Pride and Sunbeam brands.
Bill Toler, the CEO of Hostess, and Dean Metropoulos, a serial turnaround investor and current executive chairman of Hostess, will continue to lead the new public company, according to Tuesday’s announcement.
The company has kept its headquarters at 1 E. Armour Blvd. in Kansas City throughout the restructuring, which followed years of labor unrest, two bankruptcy filings and declining American consumption of sugary treats. But the reborn company has managed a turnaround, which included creating a new direct-to-warehouse distribution system to speed delivery times to stores.
“We think of ourselves as a billion-dollar startup,” said Toler, who will continue as CEO.
Toler said the company’s turnaround relied on a three-legged stool: consumer brand fondness, new extended shelf-life technology and the new delivery system. Toler also credited $130 million in information technology and bakery investments by Apollo and Metropoulos that have improved plant efficiencies.
Hostess was founded in 1919, and its first product was the Hostess CupCake. Twinkies were introduced in 1930.
The financial condition of the bakery company, once known as Interstate Bakeries and Interstate Brands, had slid downhill from a mid-1990s peak when it was the largest wholesale baker of bread and snack cakes in the United States. In fact, national brand recognition prompted the company to rename itself in 2009 as Hostess Brands Inc., the name it now reclaims.
By 2012, the company had failed, bakery union contracts were severed and the brands disappeared from store shelves.
Metropoulos said in a conference call with investors that the Apollo-Metropoulos partnership in the last three years has focused on “building an excellent management team at all levels” along with creating plant efficiencies and innovations. The new company will be focused on “strategic acquisitions,” he said.
According to the company’s announcement, “This transaction better enables Hostess to continue executing on its long-term growth plan by providing greater access to capital to fund future innovation and acquisitions.”
Hostess has stated previously that its growth strategy includes focusing on the in-store bakery market — supermarket sections that offer fresh-baked products and dedicated staff — and an expanded product line along with its packaged treats. The company recently acquired Superior Cake Products to help spark its in-store bakery reach.
Toler said he was excited to take the Hostess brands forward and said retailers are working with the company to build its display space. Wal-Mart Stores Inc. is a lead partner in this effort, he said.
The Hostess growth plan includes introducing new products. This summer, Toler said, the company will launch frozen fried Twinkies in Wal-Marts. This year also will bring Key Lime Slime Twinkies to market, a tie-in with the new “Ghostbusters” movie, he said.
The CEO also cited an agreement with the Mars company that introduced M&M brownies and Milky Way brownies into the Hostess lineup.
Alec Gores, chairman and CEO of The Gores Group LLC, which sponsors the affiliated Gores Holdings, said his group had “evaluated a number of potential acquisitions for Gores Holdings and believes this transaction offers a superior option for our stockholders.”
Gores said Hostess was a “unique opportunity to invest in an iconic brand with strong fundamentals that is poised for continued growth.”
Hostess Brands said its revenues totaled $650 million for the 12 months ended May 31. The expected $2.3 billion price represents 10.4 times the company’s estimated 2016 adjusted earnings before interest, taxes, depreciation and amortization expenses of $220 million.