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(Reuters) - Flowers Foods Inc (FLO.N) is set to buy Wonder Bread and some other brands owned by Hostess Brands Inc HTBRS.UL for $360 million, a source familiar with the matter said on Wednesday, giving the No. 2 U.S. baking company a bigger slice of the fast-consolidating bread business.
Pending approval from a U.S. bankruptcy court judge, Wonder Bread, along with Butternut, Home Pride, Merita and Nature's Pride, will go to Flowers after no other bidder stepped up to make a competing offer, the source said.
Shares of Flowers, which makes Nature's Own bread and Tastykake snacks, were up 2 percent in late afternoon trade, as the deal is expected to boost the company's margins and earnings.
Wonder Bread, known for its soft, spongy texture and polka-dot wrapper, is an iconic American brand that has been around for decades.
Hostess, which is liquidating its business after 82 years, was set to run an auction on Thursday for the brands, but there will be no auction since there were no other bids, said the source, who declined to be named as the process is private.
There will be an auction for the Beefsteak brand, for which Flowers bid $30 million, since Hostess received a higher bid from Mexico's Grupo Bimbo (BIMBOA.MX), the source said. Bimbo bid $1 million more for the Beefsteak brand, though its $31.9 million bid includes a $900,000 breakup fee.
Hostess declined to comment. Flowers did not immediately return a call seeking comment.
A Bimbo spokeswoman declined to speculate on how the auction process may unfold, noting that the company has already said there may be Hostess assets that might make strategic sense.
"We'll just have to see how that plays out," spokeswoman Monica Breton Salazar said.
Flowers agreed in January to be the "stalking horse" bidder for bread brands including Wonder Bread, which set a floor for the bidding and was subject to a court-supervised auction.
Flowers, founded in 1919 in Thomasville, Georgia, has grown over the years through a string of acquisitions. It was the one-time owner of well-known names including Keebler Foods and Mrs. Smith's pies.
SunTrust Robinson Humphrey analyst William Chappell expects the Hostess deal to add at least 30 cents per share to Flowers' earnings once the brands are integrated. He expects to hear more about Flowers' estimates and strategy at a company-sponsored analyst meeting in New York next month. He has a "buy" rating on the stock.
Hostess expects to run two more auctions next month. One would be for the Hostess snack cake brands, including Twinkies and Dolly Madison, for which private equity firms Apollo Global Management LLC (APO.N) and C. Dean Metropoulos & Co set the bidding at $410 million.
Grupo Bimbo, the world's largest breadmaker with U.S. products including Entenmann's cakes, Arnold bread and Thomas' English Muffins, was also a candidate to bid for Hostess' snack cake brands which include Twinkies, sources previously told Reuters.
The other auction would be for its Drake's cake business and additional bread brands. So far, McKee Foods, maker of Little Debbie snack cakes, offered $27.5 million for Drake's, which includes Ring Dings, Yodels and Devil Dogs.
United States Bakery Inc, also known as Franz Family Bakery, agreed to pay $28.85 million for the Sweetheart, Eddy's, Standish Farms and Grandma Emilie's bread brands.
Bimbo agreed to buy the North American Sara Lee bread business in 2010 as the company sought to expand its reach in the baked goods market. Selling fresh bread is often a difficult business, as there are a lot of low-cost store branded players.
Hostess obtained permission late last year to wind down its business after a strike by its bakers union crippled the company. The sale of its brands and assets is being run by Joshua Scherer of Perella Weinberg Partners.
Flowers shares ended 2.3 percent higher at $28.32 on the New York Stock Exchange on Wednesday. Grupo Bimbo shares were up 2.7 percent at 33.87 pesos in trading in Mexico City.
Reporting by Martinne Geller in New York; Editing by Soyoung Kim, Tim Dobbyn and Matthew Lewis