Reviews of Smucker’s Hostess offer are mixed.
On September 14, J.M. Smucker shares were downgraded to “neutral” by BofA Global Research. According to Peter T. Galbo, a research analyst with BofA, the company was previously rated as a “buy” since it was believed that J.M. Smucker will concentrate on a more optimized portfolio of core brands after selling low growth/margin assets for a number of years. He continued, “J.M. Smucker, which has a mixed history in mergers and acquisitions, would be exposed to risk and complexity with the addition of Hostess Brands.” Through Big Heart Pet Brands in 2015 and Ainsworth Pet Nutrition in 2019, J.M. Smucker invested $7.7 billion to enter the pet food industry; nevertheless, over 60% of this market was sold for roughly $1.3 billion during the previous two years.
If Hostess Brands can assist J.M. Smucker brands like Uncrustables in breaking into new markets like convenience shops, there could be potential revenue synergies, according to Mr. Galbo.
In a research study on packaged goods published on September, London-based Cowen and Co. LLC still gave the Orrville-based J.M. Smucker Co. a “outperform” rating.
Cowen and Co. stated, “We anticipate Smucker’s growth rate has jumped to 3% to 4% due to changes it has made to its commercial model and its advantages in appealing categories (coffee, pet snacks, dry cat food, and frozen sandwiches). Furthermore, we believe that the market overestimates management’s capacity to create revenue synergies and successfully integrate the Hostess purchase.
According to Cowen and Co., Hostess Brands, located in Lenexa, Kansas, is a “market perform” firm because of its advantages in the sweet baked goods market, its pipeline for innovation, and its marketing insights. According to Cowen & Co., in 2024, Hostess’s market share will rebound and volumes will increase as a result of capacity development. On September 13, Hostess Brands’ Nasdaq stock price finished at $33.50 per share, up 19% from the close of $28.11 on September 8.
According to Geoff Coltman, vice president of client engagement at Chicago-based Catena Solutions, which provides merger and acquisition advisory services, the Smucker-Hostess agreement was not unexpected.
Regarding J.M. Smucker, he added, “this expands and transforms their portfolio of items to bring them into a completely different market (convenience stores).”
It will take time to combine the two businesses into one.
“I don’t think there will be any changes in employment for a while,” he stated. “I don’t think you’ll see the elimination of redundant roles until (J.M. Smucker) determines how quickly they can retain those businesses as stand-alone entities or integrate them.”
He expressed his excitement about how the deal might impact product development, speculating that chocolate or jelly would show up in Smucker Uncrustables or chocolate cupcakes, respectively.
Mr. Coltman predicted that Hostess products would eventually integrate with other SKUs and brands (owned by J.M. Smucker) as a result of innovation.
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According to Mr. Coltman, the food and beverage business will likely see more mergers and acquisitions in the future.
“The bigger brands, like Coke, Smuckers, Mondelez, and Mars, are all part of their acquisition strategy, in my opinion,” the speaker stated.
Smaller businesses launching new products and an increase in consumers buying healthy items are posing challenges for the big brands.
“I believe there will be a surge in acquisitions in the near future as major brands purchase newly launched products,” the speaker said.
Healthier products were also noted in the Cowen & Co. research.
According to the firm, “entrepreneurial companies like Kind, Chobani, Freshpet, and Annie’s have disrupted food categories by introducing healthier options and capitalized on changes in consumer attitudes.” They were able to raise awareness without having to invest hundreds of millions of dollars in traditional media thanks to social media and online retailing. Food processing is a rather low-tech industry in terms of production, and entrepreneurial businesses can leverage a wide range of third-party manufacturing capabilities. In this industry, entry barriers are generally minimal.
“The ‘big food’ companies found it challenging to alter preconceived notions about what their brands stand for, so they reformulated their legacy brands with fewer artificial ingredients and colors in response to these consumer trends.”