Hershey to Buy Two Pretzel Brands for $1.2B


The Hershey Company (HSY) announced its intent to buy Dot’s Pretzels LLC and Pretzels Inc. for a total consideration of about $1.2 billion.

The acquisitions are aimed at expanding the snacking portfolio and manufacturing capabilities of the world’s largest chocolate manufacturer and confectionary maker. Following the news, shares rose 1.9% to close at $179.56 on November 10.

Dot’s Pretzels LLC

Dot’s Homestyle Pretzels, a unit of Dot’s Pretzels LLC, is one of the fastest-growing pretzel brands in the U.S. According to Hershey, the acquisition will enhance its growing salty snacking portfolio and enable the company to attract new customers.

Michele Buck, President and CEO of Hershey, said, “With a unique range of bold, distinctive seasonings and a flavorful crunch that creates a premium pretzel experience for consumers, Dot’s Pretzels stand apart from all other products in the pretzel category and represents 55% of the pretzel category’s growth during the past year.”

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Pretzels Inc.

Hershey also signed a deal to buy Pretzels Inc. from an affiliate of Peak Rock Capital, which has investments in several food and beverage categories. With the acquisition, Hershey aims to expand its manufacturing base by adding three manufacturing facilities operated by Pretzels in Indiana and Kansas.

These will be added to the four pretzel-seasoning facilities from the Dot’s deal. Pretzels Inc. is also a co-manufacturer for Dot’s Pretzels and numerous other customers in the segment.

Commenting on the deal, Buck said, “Pretzels Inc. will help us expand Hershey’s snacking and production capabilities while keeping the special connection to Dot’s… It will be important as we continue to grow this already fast-growing brand and create new products in the broader pretzel category.”

Financial Details

The $1.2 billion purchases would be funded through cash and short-term borrowings. Both deals are expected to close by the end of 2021, subject to customary closing conditions. The investment will net approximately $1 billion post expected future tax benefits.

For the twelve months ending September 2021, net sales for both companies aggregated to around $275 million. Furthermore, the acquisitions are expected to be modestly accretive to adjusted earnings in 2022, and reported earnings in 2023.

Analysts’ Recommendation

Jefferies analyst Robert Dickerson said, “The Dot’s Pretzels acquisition helps HSY expand the breadth of its snacking portfolio and create an opportunity to reach new customers in new occasions. And the acquisition of Pretzels Inc., which operates three manufacturing facilities in Indiana and Kansas, would not only help HSY support Dot’s growth but also help with manufacturing capabilities to support future Pretzel innovation.”

Dickerson has a Hold rating on HSY stock with a price target of $187, which implies 4.14% upside potential to current levels.

Overall, the stock has a Moderate Buy consensus rating based on 6 Buys and 5 Holds. The average Hershey price target of $191.70 implies 6.76% upside potential to current levels. Shares have gained 16.9% over the past year.

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