US-firm Hostess became an acquisition target after it raised prices on some of its products to boost revenue, fuelling investor concerns over its prospects. Prior to the news of the company exploring a sale, its shares were down 1% year-to-date, versus a 29% rise in the Nasdaq Composite Index.
General Mills, Mondelez International Inc, PepsiCo and Hershey Co are among the companies that have shown an interest in acquiring Hostess, the sources said.
Hostess has hired investment bank Morgan Stanley for advice on handling the deal negotiations, the sources said. No agreement is certain and Hostess may decide against any deal, the sources added.
The sources asked not to be identified because the matter is confidential. Hostess and Hershey declined to comment, while General Mills, Mondelez, PepsiCo and Morgan Stanley did not immediately respond to requests for comment.
Hostess shares rose 26% on the news to $27.89 in Friday afternoon trading in New York, giving the company a market value of close to $4 billion (€3.7 billion). Hostess also had debt net of cash of about $900 million (€831.9 million) as of the end of June.
About Hostess Brands
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 company 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 Inc 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.
Hostess reported net revenue of $352.4 million (€32.5 7 million) in the second quarter, up 3.5% year-on-year. Gross profit increased 11.8% to $126.0 million (€116.5 million).