Hershey To Buy SkinnyPop Owner Amplify For $1.6 Billion

In a bid to go beyond chocolate and gain a solid footing in the fast-growing market for healthy snacks Hershey Co. (NYSE:HSY) inked a deal to acquire Amplify Snack Brands Inc. (NYSE:BETR) — the maker of SkinnyPop and Tyrrell’s potato chips.

Consequently, Amplify's shares were up 71.6% on Dec 18 while Hershey gained a mere 0.1%.

Terms of the Deal

Hershey agreed to buy all outstanding shares of Amplify Snack Brands for $12 a share, which is a 71% premium to Friday’s closing price. Valued at approximately $1.6 billion, the deal includes net debt and a make-whole payment of $76 million related to the Tax Receivable Agreement (TRA).

Per the company, the transaction is slated to close in the first quarter of 2018 and will be funded with cash on hand and new debt. In fact, the acquisition is expected to be accretive to Hershey's earnings in the first year following the deal closure..The accord is also anticipated to generate approximately $20 million in annual run-rate synergies over the next two years.

However, the takeover is not expected to affect Hershey’s full-year 2017 guidance, projected earlier.

Hershey and Other Food Biggies Diversify to Combat Fading Demand

The packaged food industry is suffering from waning consumer demand due to the shift in consumer preferences to healthier options. In this context, Austin, TX-based Amplify seems to be gaining ground as it offers the better-for-you food products. Apart from owing Skinny Pop popcorn and Tyrrells potato chips, Amplify also owns Oatmega bars made with whey protein from grass-fed cows in New Zealand.

Over the past two years, Hershey acquired brands like Krave meat jerky and Ripple Brand Collective's barkTHINS as well. Notably, the company’s top-line performance was weak since 2014. However, sales increased a meager 0.7% in 2016 and 1.9% in the first nine months of 2017. Persistent macroeconomic challenges in China continued to hurt the company’s result.

Notably, soft international sales due to macro headwinds, changing consumer shopping habits and intense competition from the broader snacking environment in the United States were mainly responsible for the sales results.

Apart from Hershey, other big food giants are gradually re-shuffling their shelves and are making niche acquisitions, given tepid demand.

In a separate press release, Campbell Soup Company (NYSE:CPB) unveiled deal to buy Cape Cod chips-maker Snyder's-Lance, Inc. (NASDAQ:LNCE) for $4.87 billion in cash to fight declining soup sales. The No. 5 U.S. healthy savory snacks maker — Snyder's-Lance — also owns brands like Eatsmart veggie snacks.

Although Campbell and Hershey operate in different section of food industry, their core products have been suffering from lower demand. Much of the sales debacle could be attributable to consumers’ changing eating patterns and their evolving preferences for healthy, fresh and organic food products.

Other biggies like General Mills Inc. (NYSE:GIS) and Kellogg Co (NYSE:K) are also acquiring or investing in healthier options to boost sales and thereby profits. In line with the strategy to diversify its organic offerings, Kellogg entered into an agreement in October 2017 to acquire protein bar maker — Chicago Bar Company. Chicago Bar Company makes RXBAR, which is considered to be the fastest growing nutrition bar brand in the United States. The addition of “clean-label, high-protein” RXBAR can be expected to revive Kellogg’s wholesome snacks business, which has been weak over the past few quarters.

Meanwhile, Conagra Brands Inc (NYSE:CAG) took over Boomchickapop popcorn maker — Angie's Artisan Treats — in September 2017.

Currently, Hershey and these food companies are regularly bringing innovations to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. Hershey expects innovation to help it achieve its long-term net sales growth target of 2% to 4%.

Shares of this Zacks Rank #3 (Hold) company have gained 10.5% year to date, as against the industry’s loss of 20.6%. Although the Hershey’s earnings estimates for the current quarter and current year remained unchanged, successful innovation and progress in multi-year productivity, and cost-saving initiatives are likely to drive growth for this largest producer of quality chocolate products.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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