Philadelphia's money-losing Tasty Baking Co. has agreed to be purchased by Flowers Foods, Thomasville, Georgia, for $4 a share. That's double the stock's recent price and a premium to anyone who bought the stock this winter, but a discount to Tasty share prices in recent years. Read Flowers' statement here.
The sale works out to $34 million in cash for Tasty's 8.5 million shares. "We are delighted to welcome Tasty's 740 dedicated employees and 413 independent sales distributors to the Flowers Foods family. Our plans are to invest in the combined business for sustainable and profitable growth, and they will be an important part of Flowers' ongoing success," says Flowers boss George Deese.
Flowers also says it will assume Tasty's "existing indebtedness" totalling around $131 million. That looks like good news for Pennsylvania taxpayers: Tasty had borrowed around $80 million for the company's new South Philadelphia plant, about half of which is owed to state programs, the rest to Citizens Bank and other lenders.
The deal is part of Flowers' ambitious strategy to grow beyond the South into a national chain of fresh and frozen snacks. Flowers says it will keep Tasty's new $80 million bakery at the Navy Yard complex in South Philadelphia and its second plant in Oxford, Chester County.
Flowers wants to sell Mrs. Freshley's sweet rolls, Nature's Own breads and other Flowers products "throughout Tasty's geographic footprint" in the mid-Atlantic states, and "will require additional acquisitions to add needed production capacity" to make that happen. Flowers also said it will offer Tastykakes down South. Spokeswoman Mary Crier had no immediate comment on what happened to a 2002 joint distribution deal between the companies.
Tasty in January asked creditors to delay payments while it sought a buyer or new investors, citing disappointing financial results from the new plant along with higher corn syrup costs and supermarket bankruptcies. The deal "ensures that Tastykakes will continue to be made by Philadelphians in Philadelphia," Tasty boss Charles Pizzi said in a statement distributed by Flowers.
Flowers is one of the companies identified by Costello Asset Management's Robert Costello as a likely Tasty buyer in my Jan. 5 post here.
"They did a phenomenal job getting the deal done. It could have been a bankruptcy," Costello told me. "It's an excellent company," he said of Flowers. "Return on equity is 18%. They're very efficient. There's no question they're going to change the way things are done here. It'll take a year, it won't happen overnight," he said. "Will (Flowers) cannibalize Tasty sales? Overall I think Tasty will benefit" if Flowers is able to market Tastykakes in parts of its Southern base.
Flowers had sought to buy Tasty in the past but talks led nowhere. Costello said Flowers would likely have closed Tasty's former Hunting Park plant if Pizzi hadn't built the new plant; if so, the move proved expensive for shareholders, while saving Tasty's Philadelphia jobs.
Flowers is publicly-traded, but the Amos McMullian family of Macon, Ga., remain major shareholders. Flowers makes Mrs. Freshley's sugary packaged snacks and Nature's Own breads, among other fresh and frozen products. Flowers is also a past owner of the former Mrs. Paul's frozen-foods plant in Pottstown.