Beleaguered Hostess Brands Inc. is headed to a highly-anticipated auction on Feb. 28, for its Wonder and other primary bread brands, with Flowers Foods Inc. in place as the lead bidder. Hostess is also headed to a March 13 auction for beloved Twinkies, with private equity firms Apollo Global Management LLC (NYSE: APO) and C. Dean Metropoulos & Co. in place as lead bidders. Auctions for Drakes, which makes the coffee cakes once featured on "Seinfeld," with McKee Foods Corp. as the lead bidder, and the secondary bread assets, with Mountain States Bakers LLC as lead bidder, will take place on March 15. It took several years and multiple bankruptcy cases for Hostess to reach a point where it would finally sell.

As Hostess gears up for the auctions, we take a look back on the company's bankruptcy case, and what led the legendary snack maker to the point where it had to split up an empire, sell businesses and wind down operations.

When Hostess filed for Chapter 11 bankruptcy protection on Jan. 11, 2012 in the U.S. Bankruptcy Court for the Southern District of New York, the company had devised a turnaround plan that, among other things, would modify collective bargaining agreements (CBAs) with its workers.

Hostess was left with financial pressures, including an inefficient operating structure in addition to the CBAs, from a bankruptcy case that it exited from in 2009. The organizational structure, built up over years of acquisitions, had remained in place since before it sought bankruptcy protection the first time in 2004.

Hostess was formed as Schulze Baking Co. in 1927 and became Interstate Bakeries Corp. after a merger with Western Bakers Ltd. in 1937. The company made multiple acquisitions, but failed to integrate and streamline its new assets well.

It sought bankruptcy in the U.S. Bankruptcy Court for the Western District of Missouri in 2004 because of the cost burdens related to its 54 bakeries, more than 1000 distribution centers and 1,200 bakery outlets across the country. At the time of its 2012 bankruptcy filing, Hostess operated 36 bakeries, 565 distribution centers, 5,500 delivery routes and 570 outlet stores in the U.S.

When Hostess moved on from the initial bankruptcy case in 2009, the organizational structure, including the CBAs, stayed in place. After it exited from its previous bankruptcy case, Hostess' financial performance didn't keep up with the projections set forth in the reorganization plan. The company experienced losses of $138 million in 2010 and $341 million in 2011.

When Hostess sought bankruptcy protection, it said in court papers that as a result of industry consolidation, its competitors were expanding their market reach. It also said many of its competitors didn't have unionized employees. When it went into bankruptcy in 2012, Hostess had 372 separate CBAs that mandated maintenance of 80 different health and welfare benefits plans, increases in wages and benefits and specific work rules.

For example, if Hostess needed to provide both bread and cake products to one location, depending on the route, the CBAs mandated that separate trucks deliver the products, that products must be loaded into the trucks by a separate person than the driver, and that a separate employee needed to move products from the back room to the shelf.

In court documents, Hostess says the most expensive part of its operating costs were its obligations under the CBAs, which covered about 15,000 employees. Hostess asked the court in a Jan. 25, 2012 motion to reject the CBAs, beginning the turmoil that led the company to cease operations.

Hostess' chief executive, Brian Driscoll, said in an affidavit filed with the bankruptcy court, that Hostess' long-term viability depended upon the debtor's ability to achieve dramatic change to its labor agreements, as well as reduce its cost structure, legacy pension and medical obligations and recapitalize its capital structure, which it planned to do in Chapter 11.

Eventually, Hostess was able to modify CBAs with each of its unions. But after starting to implement those changes in October, it received strike notices from the unions. Thousands of workers formed picket lines outside of Hostess' bakeries starting in November, according to court documents. Those strikes caused Hostess to lose between $7.5 million and $9.5 million, according to court papers. In response, Hostess filed a motion to wind down.

After one last court-suggested mediation attempt, which failed, Hostess began its wind down, which will ultimately cost 18,000 jobs.

Hostess has a long and unsuccessful track record of trying to sell its businesses, dating back to the 2004 bankruptcy. Miller Buckfire, its financial adviser at the time, contacted more than 50 potential strategic buyers for the company, but only one submitted a proposal.

Hostess retained Goldman Sachs and JP Morgan to explore sale opportunities again in 2010. Goldman and JP Morgan contacted Grupo Bimbo SAB de CV (BMV: BIMBO), Flowers Foods, the Hershey Co. (NYSE: HSY), the J.M. Smucker Co. (NYSE: SJM), Kraft Foods Group Inc. (Nasdaq: KRFT), B&G Foods Inc. (NYSE: BGS), Pepperidge Farm Inc., the Blackstone Group LP (NYSE: BX) and Kohlberg Kravis Roberts & Co. LP (NYSE: KKR), and couldn't get any offers to buy the assets.

The only significant divestment that resulted from Hostess' near-continual process was the sale of the Mrs. Cubbison's brand of croutons and other crispy snacks to Sugar Foods Corp. for about $12 million, orchestrated by Houlihan Lokey in 2011.

Hostess' current financial adviser, Perella Weinberg Partners, contacted 171 parties about a sale after the company decided to wind down. Of those contacted, 88 executed confidentiality agreements, which allowed 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 the bread assets, 10 bids for the cake brands and one bid for all of the assets, which it determined was too low.

"Whoever buys the assets will need to make meaningful investments in modernizing the plants and further automations," says Brette Simon, an M&A partner at Bryan Cave LLP who specializes in the food industry. For the assets to thrive, they'd need to be placed under strategic ownership without union labor, according to Simon.

"They are not really on trend, so they need to be part of an organization with the capital, expertise and patience to revitalize them and reverse the trends, something more likely to occur under strategic ownership," Simon says.

Hostess filed its first set of bidding procedures, for its primary bread assets, on Jan. 11, naming Flowers Foods, the maker of Tastykakes and a company long thought to be a potential buyer, as the lead bidder for the assets. Flowers submitted 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. Judge Robert Drain approved the bidding procedures on Jan. 28, and scheduled an auction for Feb. 28, and a sale hearing March 5. Hostess needs to receive any competing bids for those assets by Feb. 25.

If Flowers watches a competitor walk away with the primary bread assets, it will receive a $12.6 million breakup fee. If it doesn't win the Beefsteak auction, it will receive a $1.05 million breakup fee.

Hostess named McKee Foods as the stalking-horse bidder for Drakes with a $27.5 million bid on Jan. 28. The Drakes assets include the Coffee Cakes, Devil Dogs, Funny Bones, Ring Dings, Sunny Doodles, Yankee Doodles and Yodels brands, as well as fruit cakes and cookies.

The debtor also named Mountain States as the lead bidder for Hostess' Sweetheart, Standish Farms, Grandma Emilie's and Eddy's bread brands, with a $28.85 million bid.

Auctions for those two sets of assets are scheduled for March 15. 

On Jan. 30, Hostess named Apollo and C. Dean Metropoulos as the lead bidders for Twinkies and other snack brands. Hostess will head to a March 13 auction for the those assets. 

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