Beleaguered Hostess Brands, Inc., headquartered in Irving, Texas, continues along the path to “freedom” tomorrow with yet another hearing in the White Plains, N.Y., Bankruptcy Court of Judge Robert Drain. The session, scheduled to begin at 10 a.m. Friday, Jan. 25, is one more step toward final liquidation, in a process which began last November. Hostess, which had been operating under Chapter 11 Bankruptcy (reorganization) protection since January 2012, opted for liquidation following what it termed a “crippling strike” by members of its bakers union earlier that month.
Speculation is running high that Hostess will announce a “stalking horse” bidder for its snack brands in conjunction with tomorrow’s court date.
C. Dean Metropoulos & Co., in association with Apollo Global Management, is expected to bid on at least some of the snack cake brands, which include Twinkies, Ding Dongs, Ho Hos, and Drake's Devil Dogs. Other names have also been mentioned frequently, however, including Mexican giant Grupo Bimbo, as well as Kroger, Wal-Mart, and McKee Foods, maker of Little Debbie Snack Cakes.
A Bloomberg article yesterday reported, “'We continue to be very engaged in the bidding process,’ Daren Metropoulos, a principal at the private-equity firm that owns Pabst Brewing Co., said in an e-mail. ‘We are working diligently to get a deal done’.”
Just two weeks ago, Flowers Foods of Thomasville, Ga., was named the “stalking horse” for the majority of Hostess’s bread brands, including Wonder, Home Pride and Nature’s Pride, among others, with a bid of $360 million. That offer, which Flowers noted would be accomplished through “cash on hand and debt,” includes the transfer of 20 bakeries and 38 depots. Flowers also submitted a separate offer in the amount of $30 for Beefsteak Bread.
Hostess has asked for a Feb. 28 “auction date,” allowing competitive bidders to step up at that time, with a hoped-for closing in early March. Joshua Scherer of Perella Weinberg Partners, an investment banking firm advising Hostess, has noted repeatedly that a quick sale is essential in maximizing the potential for any bidder, noting that “The longer Hostess’ bread products stay off the shelves (because they are no longer being manufactured), the more likely it is that consumers will begin to use competitors’ products,” in an analysis published Jan. 22 by bakingbusiness.com.
Scherer detailed the behind the scenes activity surrounding the bidding procedure in a sworn affidavit submitted to the bankruptcy court. He noted that: “Following contacts with 171 potential bidders for the Hostess Brands assets, confidentiality agreements were executed with 88 parties.”
He also said that by the Dec. 10 bid deadline, his firm “had received 13 bids for the Hostess bread assets, 10 for the cake assets and 1 for basically all the assets.” According to the article, the “single bid for all the assets had a number of drawbacks, including a purchase price lower than Flowers’ bid for the bread assets alone.”
On the docket for consideration tomorrow are motions relating to the approval of bidding procedures, notices, bidder protections and final sale hearings for the “Sale of Assets Related to a Majority of the Debtors Bread Brands” as well as procedures relating to the sale of assets related to the Beefsteak Brand.
A second order to be considered deals with “(A) Authorizing the Sale of Assets Related to a Majority of the Debtors Bread Brands Free and Clear of Liens, Claims, Interests and Encumbrances and (B) Authorizing the Assumption and Assignment of Certain Executory Contracts and Leases in Connection Therewith”.
Several other issues are to be brought up in court, including insurance contracts, union concerns, claims and deadlines, and a motion filed this week on behalf of unsecured creditors regarding the “excessive” amounts of possible “break-up fees” to be paid to Flowers in case they are not the winning bidders, after the auction proceeding, for the bread brands.
One of the most interesting developments in the ongoing saga is a recent announcement by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTWG) that it has retained the investment banking firm, Gordian Group, LLC, in an effort to work with the union and “interested bidders to preserve jobs, providing a seamless restart of baking operations,” said Gordian President Peter Kaufman.
“The Bakers are here to work with bidders in any way as our sole goal is to maximize jobs and pension benefits for our members,” said Union President David B. Durkee in a press release issued Jan. 19. “We are looking to support and work with well-capitalized bidders.”