Hostess sifting bids to buy brands, assets

Sale expected to split up snack cakes

Faye Crawford passes a rack of Hostess products on Nov. 24 at a grocery store in Jonesboro.
Faye Crawford passes a rack of Hostess products on Nov. 24 at a grocery store in Jonesboro.

— Twinkies, Wonder Bread and Devil Dogs are likely to return to shelves in coming months, but probably not under the same owners.

Hostess Brands Inc. said in U.S. bankruptcy court Friday that it’s narrowing down the bids it received for its brands and expects to sell off its snack cakes and bread to separate buyers. The testimony came from an investment banker for Hostess, which is liquidating.

A likely suitor has emerged for the namesake Hostess brand, which includes Twinkies, Ding Dongs and Ho Hos, along with Dolly Madison cakes, which include Coffee Cakes and Zingers, said Joshua Scherer of Perella Weinberg Partners. He said another viable bid was made for Drake’s cakes, which include Devil Dogs, Funny Bones and Yodels. That bidder also wants to buy the Drake’s plant in Wayne, N.J., which Scherer said is the country’s only kosher bakery plant.

Additional bids have been submitted for its bread brands, which include Wonder and Home Pride. It’s expected that a four-week auction process for submission of binding bids will begin in January. Scherer said the auctions could be very active for some of the brands, given the number of parties that have expressed interest. Sales could be completed by as early as mid-March.

About 30 plants could also be sold with the brands, Scherer said, with six plants, several warehouses and a fleet of trucks likely to be closed or scrapped.

Heather Lennox, a lawyer for Hostess, told U.S. Bankruptcy Judge Robert Drain in White Plains, N.Y., that potential buyers are interested in brands and equipment.

The wind-down “needs to be an orderly process so I can make a good finding” that any sale is proper, Drain said.

Hostess has hired a firm, Hilco, to act as a sales agent for those additional assets. The firm also will give Hostess a $30 million loan to maintain operations during its liquidation, which is expected to take about a year.

Hostess, based in Irving, Texas, has said potential buyers include major packaged food companies, national retailers and supermarkets. The company has said it needs to move quickly in the sale process to capitalize on the outpouring of nostalgia sparked by its bankruptcy.

To begin winding down its operations late last month, Hostess had said it would retain about 3,000 workers to close plants and perform other tasks. On Friday, an attorney for Hostess said in court that figure was down to about 1,100 employees. The liquidation of Hostess ultimately means the loss of about 18,000 jobs, not including those shed in the years leading to the company’s failure. Chief Executive Officer Greg Rayburn, who was hired as a restructuring expert earlier this year, is earning $125,000 a month.

The company’s demise came after years of management turmoil and turnover, with workers saying Hostess failed to invest in updating its snack cakes and breads. Hostess filed for its second Chapter11 bankruptcy in less than a decade this January, citing steep costs associated with its unionized work force.

The company was able to reach a new contract agreement with its largest union, the Teamsters, but the bakers union rejected the terms and went on strike Nov. 9.

A week later, Hostess announced its plans to liquidate, saying the strike crippled its ability to maintain normal production. Although Hostess sales have been declining over the years, they still are between $2.3 billion and $2.4 billion a year.

When asked how much the brands are expected to fetch from buyers, Scherer said he would rather not say.

Information for this article was contributed by Dawn McCarty of Bloomberg News.

Business, Pages 27 on 12/22/2012

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