TEXT-S&P: Flowers Foods ratings unaffected by Lepage buy

Tue Jun 5, 2012 2:58pm EDT

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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