Milling & Baking News - April 19, 2011 - 9

Flowers jump starting geographic expansion with Tasty acquisition
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officer of Flowers. “We believe Tasty is highly consistent with our acquisition strategy and also offers substantial synergy potential that we expect will generate a strong financial return for our shareholders.” Flowers said the aquistion will grow the company’s market access to 61% of the U.S. population through directstore delivery distribution, up from 53%. In a presentation to Wall Street analysts March 21, Flowers said it expected to reach 75% of the U.S. population by 2016 (see Milling & Baking News of April 5, Page 1). Based on the company’s figures, the Tasty acquisition alone would begin to take Flowers more than 40% toward its goal. Describing Tastykake as “an iconic brand with a very loyal following,” Flowers said the acquisition will allow D.S.D. distribution in 4,000 territories in the South and Southwest as well as territories in Nevada and Southern California. “Flowers believes this is a great opportunity for a well-loved Philadelphia brand to eventually become a well-loved national brand,” Flowers said. Flowers said acquiring Tasty would do more than expand its snack cake business. “The merger also brings the opportunity to introduce Flowers’ Nature’s Own bread and buns throughout Tasty’s geographic footprint, which will require additional acquisitions to add needed production capacity for bread, buns and rolls,” Flowers said. Flowers said it will continue operating Tasty’s baking plants in Philadelphia and nearby Oxford,

describing the baking plants as “valuable production centers.” Recent investments in the plants, particularly the construction of “one of the largest green bakeries in the world” also was noted by Flowers. The Tasty business will operate as a subsidiary of Flowers’ D.S.D. segment. With Tasty, Flowers said its 2011 sales would grow by $115 million to $125 million, a figure it said would expand to $210 million to $225 million in 2012. Tasty would contribute $10 million to $12 million to EBITDA in 2011 and $25 million to $30 million the following year. While neutral or slightly accretive to earnings per share in 2011, Flowers said it would contribute 6c to 9c per share in 2012. For Tasty Baking, the sale to Flowers would end a multi-year effort to revitalize the business through a number of steps, most notably the transition from 80-plus-year-old baking facilities in Philadelphia to a newly built facility in the nearby Philadelphia Navy Yard. While construction of the new plant proceeded steadily on budget and schedule, the company experienced difficulties in the final months operating its aging Hunting Park facility in 2009-10. Then, for three quarters in 2010, the company struggled to optimize production lines in the Navy Yard plant. The production problems adversely affected the company’s ability to grow its business and kept it from achieving

$13 million to $15 million in annual operating savings needed from the new plant. In January 2011, Tasty said it had engaged an investment banker to explore strategic options, culminating with the Flowers announcement. “This merger with Flowers will create value for Tasty’s shareholders, employees, and the Philadelphia community,” said Charles P. Pizzi, president and c.e.o. of Tasty since 2002. “It will provide immediate cash value

Correction: Food, beverage sectors led by two to three branded companies
NEW YORK — In an article in the April 5 issue of Milling & Baking News, George E. Deese, chairman and chief executive officer, was incorrectly quoted as saying many parts of the packaged foods industry had consolidated to only one or two players (see Milling & Baking News of April 5, Page 12). In a presentation to Wall Street analysts Mr. Deese instead said many parts of the food industry had consolidated to two or three
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companies with another specializing in private label. “As you look at other packaged foods business in the retail market, if you look at cereal, if you look at beverage, you’re really down to two or three players in most of those categories along with some company basically focused on the private label part of the business,” he said. “This is exactly what we see happening now in the food business.” MBN

to our stockholders at an attractive premium over the current trading value. We believe the combination of Tasty with Flowers will create a company with long-term advantages for our employees, customers, suppliers, independent sales distributors and other constituents. Flowers also shares Tasty’s commitment to the communities in which it operates. We have a deep respect for Flowers’ approach to managing its business and employees, and we look forward to working closely with the Flowers team to complete the merger as quickly as possible and to ensure a smooth transition.” The $4 per share acquisition price represents a 148% premium to the closing market price of $1.61 on March 8 and equates to a market capitalization of just over $30 million. The transaction also includes outstanding debt of more than $110 million. The transaction would mark the near extinction of a once vigorous business species — the publiclytraded U.S. bread/cake baking company. Formerly featuring a rich list of names like American, Campbell Taggart, Continental, General, Interstate and Ward, today, today only two U.S. companies fit this description. And with the announcement that Flowers Foods, Inc., will acquire Tasty Baking Co., the two companies become one. MBN
Milling & Baking News April 19, 2011 / 9

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Milling & Baking News - April 19, 2011

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