Welbilt (WBT) gains on acquisition agreement with Middleby Corp. (MIDD)

Professional foodservice equipment maker Welbilt Inc. (NYSE: WBT) announced that it will be acquired by The Middleby Corporation (NASDAQ: MIDD) for $4.3 billion. The deal is expected to close in late 2021, subject to approvals and conditions. Welbilt’s shares jumped 35% in morning trade on Wednesday while Middleby’s shares gained 4%.

Transaction details

As per the terms, Welbilt shareholders will receive a fixed exchange ratio of 0.1240x shares of Middleby common stock for each share of Welbilt common stock in an all-stock transaction. Based on Middleby’s 30-day volume-weighted average price, the price represents a premium of 28% to Welbilt’s 30-day volume-weighted average price.

Upon closure, Middleby shareholders will own approx. 76% of the combined entity while Welbilt shareholders will own approx. 24%. The combined company will have around $3.7 billion in combined 2020 sales, 73% of which will come from the commercial foodservice segment.

The transaction is expected to generate $100 million of annual cost synergies by year three with additional potential from cross-selling opportunities and product development. It is estimated to be immediately accretive to adjusted EPS with greater than 10% annual accretion by year two.

The transaction is expected to create a leading food equipment company with a broad portfolio in commercial foodservice as well as help in expanding international operations, especially in high-growth regions around the world.

Recent results

For the full year of 2020, Welbilt reported net sales of $1.2 billion, which were down 27.6% from the previous year. Organic net sales declined nearly 28% year-over-year. Adjusted EPS was $0.16 compared to $0.68 last year.

Due to the impact of the COVID-19 pandemic on the commercial foodservice industry and uncertainty of demand for its products, Welbilt did not provide guidance for the full year of 2021 but the company said it expected sales to decrease 11-16% YoY for the first quarter of 2021.

Stock

Welbilt’s stock has gained 60% since the beginning of this year while Middleby’s stock has gained 34% over the same period.

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