TEXT-S&P: Flowers Foods ratings unaffected by Lepage buy
June 5 - Standard & Poor's Ratings Services said today that its ratings and outlook on Flowers Foods Inc. (BBB-/Stable/--) are not affected by the company's plan to purchase Lepage Bakeries Inc., a regional baking company based in Auburn, Maine. The total purchase price of $370 million includes $300 million in cash at closing, $20 million in total deferred cash payments beginning on the fourth anniversary of the closing date, and common stock valued at $50 million. Flowers will use a significant portion of the proceeds from its April 2012 issuance of $400 million senior unsecured notes due 2022 towards the acquisition. Flowers expects to complete the transaction in its fiscal second quarter, pending necessary regulatory approvals. Key credit factors in our "satisfactory" business risk assessment include Flowers' narrow product portfolio, leading market positions in the southern United States within the highly competitive fresh-baked goods industry, exposure to volatile commodity costs, moderate customer concentration, and geographic diversity within the U.S., yet a lack of international diversification. The acquisition is intended to complement Flowers' existing brands of breads, buns, and rolls. Lepage has three bakeries with available production capacity for Flowers' expansion, especially of the Nature's Own and Tastykake brands, in the Mid-Atlantic and Northeast markets. Pro forma for the acquisition and potential synergies, we believe credit metrics will remain near current levels through fiscal 2012. As of the first quarter ended April 21, 2012, we estimate adjusted debt to EBITDA was about 2.8x and the ratio of funds from operations (FFO) to total adjusted debt was 27%. We expect the company's pro forma credit metrics to be near or within the indicative ratios for Flowers' "intermediate" financial risk profile over the next 12-18 months as acquisition-related synergies and EBITDA expansion are realized. This includes leverage improving to the 2.5x area and FFO-to-debt over 30% by the end of 2013.
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