Bankrupt Hostess Sale Heats Up With $390M in Bids for Wonder and Other Bread Brands
Flowers Foods submitted two bids, worth $390 million, for Natures Pride, Wonder and Beefsteak
Hostess Brands Inc. is headed to a Feb. 28 auction, with Tastykake-owner Flowers Foods Inc. as the stalking-horse bidder for its bread business.
Flowers, through subsidiary FBC Georgia LLC, tendered a $360 million bid for 20 bakeries and the Butternut, Home Pride, Merita, Nature’s Pride and Wonder bread brands, plus a separate $30 million bid for the Beefsteak rye-bread brand.
Hostess filed bidding procedures for the bread assets in court on Jan. 11. Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan will preside over a bidding-procedures hearing, scheduled for Jan. 25. If the procedures are approved, a sale hearing will be held March 5.
Flowers would assume liabilities through both deals, which would likely close by April 30, according to court documents.
If Flowers doesn’t win the primary bread assets, it will receive a $12.6 million breakup fee. If it loses the Beefsteak auction, it will receive a $1.05 million breakup fee, under the terms of the bidding procedures.
Flowers has been considered a contender for the bread assets since Hostess announced its intention to wind down operations and sell off assets in November.
Hostess hasn’t set the amount of the initial overbid needed by competing bidders for either group of assets, court documents show. If bidding procedures are approved, after the initial overbid, bids for the primary bread assets would need to increase by $5 million and bids for the Beefsteak assets would need to increase by $1 million.
Competing offers must be received by Feb. 25.
Perella Weinberg Partners, Hostess’ financial adviser, contacted 171 parties since the company announced its wind-down in November. Of those parties, 88 executed confidentiality agreements, allowing them access to documents with more information on Hostess’ brands and assets.
By the Dec. 10 bid deadline, the company had received 13 bids for Hostess’ bread assets and brands, 10 bids for the cake brands and one bid for substantially all of the assets, according to court documents. The company determined the bid for all of its assets wasn’t big enough, as the bid for just the bread assets was larger.
Hostess hadn’t filed bidding procedures for its cake assets, which include Twinkies and Ding Dongs, as of Monday, Jan. 14.
The company has been trying to sell off its assets since its previous bankruptcy case. When Hostess was in bankruptcy in 2004, its financial adviser at the time, Miller Buckfire, contacted more than 50 potential strategic buyers for the company, but only one submitted a proposal. After the company exited from that case in 2009, it continued to look for a buyer, according to court documents. The only significant asset sale that resulted was the company’s sale of the Mrs. Cubbison’s brand to Sugar Foods Corp. for about $12 million. Mrs. Cubbinson’s makes croutons, tortilla strips, wonton strips, stuffing and crispy onions.
Hostess decided to wind down operations after it failed to resolve issues with striking bakers’ union. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCT) and other unions started striking on Nov. 9, which caused the company to lose between $7.5 million and $9.5 million in a matter of weeks, according to court documents. The strike came after troubled negotiations regarding collective bargaining agreements (CBAs).
The baker filed for bankruptcy protection on Jan. 11. When the company sought bankruptcy protection, it operated 36 bakeries, 565 distribution centers, 5,500 delivery routes and 570 bakery outlet stores in the U.S.
In court papers, Hostess said that the most expensive part of its operating costs is its obligations under CBAs that cover about 15,000 employees.
“Hostess simply cannot emerge as a viable competitor unless they are relieved of significant financial commitments and arcane work rules imposed by their collective bargaining agreements,” the company says in court papers.
The debtor filed a motion on Jan. 25, 2011 to reject the CBAs and modify benefit obligations. The BCT ultimately refused to negotiate with the debtors. The International Brotherhood of Teamsters and Hostess also attempted negotiations, which initially failed.
The court granted the motion to reject with regard to the BCT workers but denied it withregard to the Teamsters, court documents show. During continued discussions, theTeamsters indicated that their participation in a reorganization plan was conditioned upon Hostess’ sticking with its multi-employer pension plans, an agreement under the CBA, which caused Hostess’ potential outside investor to walk away, the debtor said in court papers.
Eventually, Hostess was able to modify CBAs with each of its unions. It started implementing those changes in October. Beginning on Nov. 7, it received strike notices from BCT, followed by other unions. Thousands of workers formed picket lines outside of Hostess’ bakeries.
Hostess, founded in 1930, was one of the largest wholesale bakers and bread distributors in the U.S. In addition to Twinkies, the company’s brands also include Dolly Madison, Twinkies and Drake’s.
Jones Day is debtor counsel. Kramer Levin Naftalis & Frankel LLP is counsel to the committee of unsecured creditors. Hostess has retained Hilco Trading LLC to sell real estate, machinery and equipment.
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