In what was something of a surprise on Thursday, Mexican giant baking company Grupo Bimbo walked away with a slice of bankrupt Hostess Brands, Beefsteak Bread, which had been expected to go to Flowers Foods of Thomasville, Ga. Flowers had offered $360 million for a package of breads, including Wonder Bread, and other assets, as well as a separate $30 million bid for Beefsteak. But, even though there was no competition for the major bid, Bimbo, figuratively, walked in at the auction scheduled Feb. 28 in New York, with an offer of $31.9 million for Beefsteak. Flowers chose not to increase its initial offer for the brand and so, in effect, there was no auction to hold.
The two offers will now be reviewed by the Bankruptcy Court prior to being confirmed; the court confirmation is scheduled for March 19, in a proceeding which is to include the final offers on five separate packages of Hostess brands and assets. Assets have been grouped into separate packages, and now, unless there are further changes, there will be five separate sales, netting more than $857 million.
Actually, the Bimbo bid was not totally unexpected, as the company had earlier expressed interest in acquiring some of the now defunct Irving-based Hostess products to add to its growing presence in the United States. The bakery industry is a bit convoluted, however. In a sale finalized just this month, Flowers acquired a Sara Lee bakery in California from Bimbo. The divestiture came about because of a Federal Trade Commission anti-trust ruling stemming from Bimbo’s purchase of Sara Lee.
Today’s Bimbo bid trumped the Flowers “stalking horse” offer, and reportedly included a $900,000 “break-up fee,” payable to Flowers as compensation for acting as the lead, or base bidder in the court-supervised proceedings. The fee is paid to any unsuccessful stalking horse bidder as compensation for acting as the “pace setter,” or for setting the base amount for the sale.
Flowers’ acquisition of the other brands -- five breads, 20 bakeries, 38 depots and assorted other assets -- still must receive the court’s final blessing, and is still subject to FTC approval, but today’s “non-auction” paves the way for the re-opening of bakery facilities which were shut down in late November, when Hostess ceased operations, shuttered its plants, parked its trucks and sent more than 18,000 workers home.
Those workers, at least a group of more than 5,000 who were members of the Bakery, Confectionery, Tobacco Workers and Grain Millers (BCTGM) International Union, have filed an objection to the sale in the New York Bankruptcy Court of Judge Robert Drain, claiming that prospective buyers of the Hostess Brands, including Flowers, have made no commitments to rehire union workers when they once again start producing the breads and cakes. The union claims that lack of union support is a violation of provisions of the National Labor Relations Act, and vows to fight for recognition of its workers’ rights.
Neither Flowers nor any of the other stalking horse bidders has addressed the issue of union labor in relation to producing or distributing former Hostess products. It has been noted, however, that Flowers has a mix of union and non-union labor in its current plants and operations.
Today, Flowers Foods Chairman and CEO George Deese made the following statement: “Since 2004, our company has expanded the reach of our fresh bakery products from about 38% of the U.S. population to more than 70% today. We accomplished this by expanding into new markets from our existing bakeries, building new bakeries, and through strategic acquisitions. We have proven experience in integrating acquisitions, having completed more than 100 since 1968 and three significant ones in just the last three years – Tasty Baking, Lepage Bakeries, and the Sara Lee and Earthgrains brands in California."
Flowers has named Allen L. Shiver, who has 33 years of experience with the company and currently serves as president, to step into the position of President and CEO on May 22, the date of its annual meeting. Deese has been named executive chairman of the board, effective the same date. The company has said it plans to use a mixture of cash and debt to finance the $360 million acquisition. Its stock price rose in expectation of the successful acquisition of the Hostess Brands breads.
The next steps in the dissolution of the 82-year-old Hostess Brands, which is itself an amalgamation of several other baking companies, and is facing liquidation following an almost-year-long Chapter 11 (reorganization) filing, is another set of auctions planned March 13 and 15 for additional products and assets.
Comments