What happened

Shares of commercial foodservice company Welbilt (WBT) soared Wednesday morning after it announced plans to be acquired by larger competitor Middleby (MIDD 0.30%). Investors think the combination that will create a kitchen equipment supply leader in the commercial foodservice space is a good one for shareholders of both companies. As of 10:55 a.m. EDT, shares of Welbilt were up about 36% and those of Middleby were trading about 3.4% higher. 

So what

Middleby will purchase Welbilt in an all-stock transaction for an amount equal to $4.3 billion, including debt. The figure represents a 28% premium to Welbilt's 30-day average share price. Once closed, Middleby shareholders will own approximately 76%, and Welbilt shareholders will own approximately 24% of the combined company.

Middleby residential kitchen equipment on display

Image source: Middleby.

Now what

Welbilt has been in the food industry for 85 years, and was spun off from industrial conglomerate Manitowic in 2016. The company will join the commercial foodservice segment of Middleby. Combined, the companies had total sales of $3.7 billion in 2020, with 73% coming from that foodservice segment. Middleby also has a food processing group, and residential kitchen equipment that includes the Viking brand. 

Middleby's strategy has been to acquire related businesses and integrate them to expand its technologies and offerings to customers, while lowering operating costs. Since 2018, Middleby has made more than 20 acquisitions. The company said within three years of completing the Welbilt acquisition, the company will be able to realized $100 million in annual savings. 

Investors seem to like the potential savings and opportunities the combined companies will have to grow. The all-stock structure will also give Middleby flexibility to spend on research and development or future acquisitions. Investors don't seem to mind the added dilution, with Middleby shares also rising today.