J.M. Smucker Co., the parent company of popular food brands such as Folgers, Smuckers, and Meow Mix, is making its way into the investment-grade corporate bond market to finance its acquisition of Hostess Brands Inc., the maker of Twinkies and HoHos. The $5.6 billion cash-and-stock deal was announced in September, and now Smucker is planning a four-tranche bond deal to support this acquisition.
According to a recent regulatory filing, Smucker's bond deal will consist of fixed rate notes with maturities of five years, 10 years, 20 years, and 30 years. Market sources have revealed that Smucker currently holds ratings of Baa3 by Moody's and BBB by S&P Global Ratings.
The proceeds from this bond deal will primarily be used to fund the cash part of the acquisition, repay debts owed by Hostess Brands and its subsidiaries, and cover fees related to the deal.
Under the terms of the acquisition agreement, Hostess shareholders will receive $30.00 in cash and 0.03002 J.M. Smucker shares for each Hostess share they currently hold. This valuation of Hostess shares at $34.25 each represents a 21.8% premium over the closing price when the deal was initially announced.
Recent data from BondCliQ Media Services indicates that Smucker's bonds have been gaining popularity over the last 10 days, with increasing net buying across all maturities. The company's maturity stack reveals that it has $1 billion in bonds maturing in 2025.
On the day the deal was announced, spreads on Smucker's existing bonds widened by approximately 20 basis points for the 4.25% notes due in 2023. However, on Wednesday, spreads remained steady with only slight fluctuations.
As for Smucker's stock performance, it experienced a 1.3% decrease on Wednesday and has seen a 28% decline year-to-date. In comparison, the S&P 500 has gained 13.6% during the same period.
Overall, J.M. Smucker Co.'s bond deal marks a significant step towards the successful acquisition of Hostess Brands Inc., while also attracting attention in the investment-grade corporate bond market.