Hostess Brands Inc. has won permission from the bankruptcy court to sell most of its bread brands at auction on February 28, and says it will submit plans to sell the Drake’s snack cakes business this week.
Speaking to FoodNavigator-USA Friday, a spokesman for Texas-based Hostess said its attorney Heather Lennox “reported to the judge that an agreement to sell certain additional bread brands and another agreement to sell the Drake’s business will be submitted next week”.
He added: “The company is also in advanced discussions with a number of parties for the remainder of the snack cake business [Twinkies, Ding Dongs, Dolly Madison etc] and expects to file an agreement in the near term.”
Asked whether this meant days, weeks or months, he said: “I can’t be more specific on the timing of when we might announce a stalking horse bidder for the snacks. ‘Near term’ is as close as I can get.”
The break-up fee has been reduced to 3% of Flowers Foods’ $390m offer
Asked about the controversial breakup fee that stalking horse bidder Flowers Foods will get if it doesn’t win the auction for the bread assets it is seeking, he said:
“The break-up fee was reduced to 3% [of the $390m offer Flowers has made for selected Hostess assets] from 3.5%, as part of a consensual resolution prior to the hearing.”
This means Flowers stands to gain $11.7m if it is not announced as the successful bidder at the March 5 hearing after the auction (rather than $13.65m, which some commentators felt was unjustifiably high).
Five more stalking horse bidders
The first stalking horse bidder for Hostess assets to emerge from the bankruptcy process, Flowers Foods recently submitted an offer of $390m for the Beefsteak, Butternut, Home Pride, Merita, Nature's Pride and Wonder brands plus 20 bakeries and 38 depots.
Hostess expects to file proposals from up to five more stalking horse bidders for the remainder of the brands and assets on the table, said the spokesman.
He did not comment on press reports that Hostess is fielding offers from private-equity firms, Apollo Global Management LLC, C. Dean Metropoulos & Co and Hurst Capital for parts of its snack cake empire, or that McKee Foods Corp. is likely to be named the lead bidder for Drakes.
According to Reuters , McKee Foods Corp - which makes Little Debbie snack cakes - is offering $25-30m for Drakes, while United States Bakery Inc, also known as Franz Family Bakery, is expected to bid about the same amount for Hostess bread brands including Sweetheart, Eddy's, Standish Farms and Grandma Emilie's.
Gregory Rayburn: We look forward to a robust auction process
At the hearing Friday, the U.S. Bankruptcy Court for the Southern District of New York authorized Hostess to proceed with an auction with the two Flowers proposals as the stalking horse bids, provided it receives additional qualified bids.
If approved, the stalking horse bids will serve as the opening bids in the auction. The final sales will be made to the highest and best bidders, subject to court approval.
"We are pleased with the Flowers offers and look forward to a robust auction process that will allow these iconic brands to continue and to maximize value for all of the Company's stakeholders," said Hostess CEO Gregory Rayburn.
"We also continue to negotiate with parties interested in purchasing our snack cake business and remaining bread brands and expect to select additional stalking horse bidders as soon as reasonably practicable."
Hostess selected the Flowers bids after its financial advisor Perella Weinberg Partners conducted a bidding process that involved contacting 169 potentially interested parties, 87 of which signed confidentially agreements, said the firm.
A stalking-horse bid is an initial bid on a bankrupt company's assets from an interested buyer chosen by the bankrupt company from a pool of bidders that sets the bar so other bidders can't low-ball the purchase price. Once the stalking horse has made its bid, other potential buyers may submit competing bids.
Baker’s union: The sooner brands can get back on shelves, the better
David B. Durkee, International President of The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM), told FoodNavigator-USA that it was important to get Hostess products back on shelves "before any additional brand erosion occurs"
He added: "Whether the new owner is Flowers or another company, our goal is to work with interested bidders in both the bread and snack cake divisions to preserve jobs and the legacy of these timeless snack cakes and breads.
"We’ve worked with Flowers on occasion in the past, and would hope to continue a positive working relationship should they become the new owners."
Asked whether the union had talked to Flowers, he said: "The Bakers are open to these discussions... The BCTGM has a well-trained, sizeable workforce with decades of experience and irreplaceable knowledge and our members provide new owners the best chance of success in a seamless revival of operations."
As to what the best case scenario for BCTGM members that could emerge from this whole process, he said: "Of course the best case scenario would be the re-hiring of all of BCTGM’s 5,000+ workers, and we are hopeful that new owners will recognize the value that our skilled members can bring in resuming operations immediately and getting these brands back on the shelf."
He could not say how many of the BCTGM members that had been laid off had found other jobs.
Unpaid wage claims
Meanwhile, Hostess is trying to deal with multiple claims for unpaid wages, leave, shift differentials and severance requests from staff, thousands of whom have been laid off following the firm’s collapse.
Hostess Brands filed for a full shut down and sale of its assets last November after nationwide strikes from members of the BCTGM, who were angered by a pay-cutting deal enforced upon them as part of a recovery plan to lift Hostess out of financial difficulties.
The liquidation led to the closure of 33 bakeries, 565 distribution centers, around 5,500 delivery routes, 570 bakery outlet stores across the US and 18,500 job losses.