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Flowers Foods to buy Lepage Bakeries in $370m deal

By Elaine Watson , 31-May-2012

Just days after its CEO told analysts his firm was in “great shape” to do more deals , Flowers Foods has announced plans to expand its bakery empire in the Northeast with the acquisition of Maine-based Lepage Bakeries for $370m.

Lepage, which has three bakeries (two in Maine, one in Vermont), adds two regional brands (Country Kitchen and Barowsky's) to Flowers’ stable, plus a direct-store-delivery (DSD) platform that will boost distribution of Flowers Foods’ Nature's Own and Tastykake brands in the Northeast.

It will also add more than $166m in net sales to Flowers' top line.

Efficient bakeries, a DSD platform in the Northeast, plus two regional brands

The deal is expected to close in the second quarter pending regulatory approvals, said Flowers CEO George Deese.

“The addition of Lepage supports our strategy as it will bring efficient bakeries with available production capacity, access to markets in the Northeast, new products and brands, and more than 550 experienced team members to our company.

“Once completed, the acquisition will increase our DSD access from 64% to 70% of the US population, moving us closer to our goal of at least 75% by 2016.”

Lepage, which makes breads, rolls and donuts, will operate under its current name as a part of Flowers Foods' DSD segment, while bosses Andrew Barowsky and Albert Lepage will serve as co-chairmen of the board of Lepage Bakeries.

Barowsky will also serve as vice chairman of innovation for Flowers Foods.

The industry will continue consolidating

Speaking to analysts about Flowers Foods’ first quarter results last week, Deese noted that a decade ago, there were eight major baking companies in the US, while today there are “roughly three [Bimbo, Flowers and Hostess] plus Pepperidge Farm”.

And Flowers - which recently completed a $400m bond offering to raise funds for “future acquisitions, general corporate purposes and working capital” - was on the acquisition trail, he said.

“The industry will continue consolidating, and I don’t know anybody in a better position to take advantage of these opportunities than Flowers today. So we are optimistic.”

His comments came as bankrupt Twinkie maker Hostess Brands told reporters it was in "active negotiations with our unions and bidders".

Margins at historical lows

Bakers face significant challenges, however, with punishing rises in input costs coupled with weak consumer confidence pushing margins to “historical lows”, said Deese.

But he added: “I don’t believe we’ll stay there forever.”

Georgia-based Flowers posted a 12% rise in sales to $898.2m in the 16 weeks to April 21 driven by last year's $165m acquisition of snack cake maker Tasty Baking Co, higher prices and volume gains in foodservice and contract manufacturing.

It blamed higher input costs for an 8% drop in net income over the same period to $37.9m.

Flowers, which has snapped up more than 100 companies since going public in 1968, operates 41 bakeries supplying fresh products to foodservice and retail customers in the Southeastern, Southwestern, and mid-Atlantic states, and frozen products to national foodservice and retail customers.

Its top brands include Nature's Own, Whitewheat, Cobblestone Mill, Tastykake, Mrs. Freshley's, European Bakers, BlueBird, and Mi Casa.

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