Flowers Foods Inc. (NYSE:FLO), a prominent player in the food and kindred products sector with a market capitalization of $4 billion, has taken a significant step in securing its financial position for an upcoming acquisition.
According to InvestingPro data, the company maintains strong financial health with liquid assets exceeding short-term obligations and a comfortable current ratio of 1.2. On Monday, the company entered into an underwriting agreement with a consortium of banks, including BofA Securities, Deutsche Bank (ETR:DBKGn) Securities, RBC Capital Markets, and Wells Fargo (NYSE:WFC) Securities, for the issuance of senior notes.
The Georgia-based company has announced the sale of 5.750% Senior Notes due 2035 and 6.200% Senior Notes due 2055, aiming to raise capital for the pending acquisition of Purposeful Foods Holdings, Inc., known for its subsidiary Simple Mills, Inc.
The proceeds from this offering, supplemented by cash on hand, will also cover related fees and expenses and support general corporate purposes. InvestingPro analysis shows the company's strong debt management position, with total debt-to-capital ratio at just 0.25 and sufficient cash flows to cover interest payments.
The notes are set to be issued under an indenture dated April 3, 2012, with Computershare Trust Company, N.A. serving as trustee. The company has appointed Regions Bank as the series trustee for the new notes. Flowers Foods has structured the notes with customary covenants, including limitations on incurring certain secured debts and engaging in specific sale and leaseback transactions.
Interest payments for both the 2035 and 2055 Notes will commence on September 15, 2025, with the former maturing in March 2035 and the latter in March 2055. The company reserves the right to redeem the notes before their respective maturity dates, with the 2035 Notes redeemable before December 15, 2034, and the 2055 Notes before September 15, 2054, at specified redemption prices.
Moreover, a "special mandatory redemption" clause is included if the acquisition of Simple Mills is not completed by the agreed termination date or if the company decides not to pursue the acquisition. In these cases, the notes would be redeemed at 101% of the principal amount plus accrued interest.
The indenture also includes standard events of default and stipulates that in case of default due to bankruptcy or insolvency, the notes will become due immediately. For other defaults, the series trustee or holders of 25% of the aggregate principal amount of the notes can declare the notes due and payable.
This strategic financial maneuver by Flowers Foods is based on the information provided in the company's SEC filing on February 14, 2025, and is designed to bolster the company's growth through strategic acquisitions.
Currently trading near its 52-week low of $18.34, InvestingPro analysis suggests the stock is undervalued, while offering an attractive 5.11% dividend yield. For deeper insights into Flowers Foods' valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Flowers Foods has drawn attention from multiple rating agencies following its acquisition of Simple Mills. Fitch Ratings downgraded the company's rating to 'BBB-' from 'BBB' due to the increase in the company's pro forma EBITDA leverage following the acquisition. Moody's (NYSE:MCO) Ratings also downgraded the long-term issuer rating of Flowers Foods from Baa2 to Baa3, reflecting an increase in gross debt-to-EBITDA leverage.
S&P Global revised its ratings outlook for Flowers Foods from stable to negative, citing increased leverage resulting from the acquisition. However, the firm maintained its 'BBB' issuer credit rating for Flowers Foods and expects the company to deleverage below 3x within approximately 24 months after the Simple Mills acquisition closes.
In addition to rating agencies, analyst firms have also commented on Flowers Foods' recent activities. DA Davidson reduced its price target for Flowers Foods to $21 from the previous $24, maintaining a Neutral rating on the stock.
Similarly, Truist Securities lowered its price target for Flowers Foods to $20.00 from the previous $23.00, while keeping a Hold rating on the stock. Both firms cited concerns about the company's market segment and the high cost of the Simple Mills acquisition.
These are the recent developments concerning Flowers Foods and its acquisition of Simple Mills. The acquisition is expected to diversify Flowers Foods' product portfolio and contribute to revenue growth, but it also introduces potential risks associated with higher leverage and integration of the new asset.
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