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Hostess turns auction attention to cake business

by Jamie Mason  |  Published January 15, 2013 at 1:24 PM
Now that bankrupt Hostess Brands Inc. has secured a buyer for its national bread business operations, it's working to secure stalking-horse bidders for its cake business, which includes Twinkies and other popular snacks.

According to Hostess Brands CEO Gregory F. Rayburn, there is healthy interest in the debtor's cake brands. He couldn't reveal how soon stalking-horse bidders would be arranged, but said the company is working as fast as it can to secure buyers.

Hostess' cake brands include Hostess, Drake's and Dolly Madison, and besides Twinkies, the snacks involved include Ding Dongs and Drake's Coffee Cakes, among others.

FBC Georgia LLC, which is a subsidiary of Flowers Foods Inc., the second-largest producer and marketer of packaged bakery foods for retail and foodservice customers in the U.S., has offered $360 million in cash plus the assumption of certain liabilities for the debtor's major bread-related brands, including Wonder, Nature's Pride, Butternut, Home Pride and Merita.

The debtor's Beefsteak, Sweetheart, Grandma Emilie's, Eddy's, JJ Nissen, Colombo and Cotton Holsum brands -- all more regional in nature -- aren't included in the sale, though the stalking-horse bidder has also agreed to buy the company's intellectual property for its Beefsteak brand for $30 million in cash plus the assumption of certain liabilities.

Under the proposed bidding procedures, if the stalking-horse bidder doesn't win the auction, it would receive a $12.6 million breakup fee for the major bread brands and a $1.05 million breakup fee for the Beefsteak sale.

According to Rayburn, in both deals the bidder needs to include enough cash to repay the amount outstanding on Hostess' $50 million prepetition revolver with GE Capital Corp. and the breakup fee.

There is roughly $20 million outstanding on the revolver, Rayburn said.

If the assets are sold to two different buyers, whichever sale closes first would repay the revolver, Rayburn said.

Competing bidders would also need to provide a 5% deposit for both of the proposed sales.

Under the proposed bidding procedures, competing bidders for the major bread brands would need to offer the same amount as the stalking-horse bidder, plus the breakup fee and a $5 million initial overbid, for a total of $377.6 million. Competing bidders would need to provide at least $32.6 million in cash through its bid to cover the repayment of the revolver and the breakup fee.

Through the bidding procedures for the Beefsteak brand, competing bidders would have to initially offer the amount of the stalking-horse bid, plus the breakup fee and a $1 million initial overbid, for a total of $32.05 million. The competing bidders would need to provide at least $21.05 million in cash through its bid, to cover the repayment of the revolver and the breakup fee.

Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York in White Plains will consider the approval of the bidding procedures on Jan. 25.

Hostess wants to schedule the auction for Feb. 28 and the sale hearing for March 5. The sale would close by April 30. Competing bids would be due by Feb. 25.

During the auction for the major bread brands, bids would increase in $5 million increments, while bids would increase in $1 million increments during the Beefsteak auction.

"We are very pleased to have announced our first stalking-horse bidder and look forward to announcing others and to executing a robust auction process," a Hostess spokesman said.

Through the sale of the major bread brands, the stalking-horse bidder will buy 20 bakeries in Alabama, California, Colorado, Florida, Iowa, Illinois, Indiana, Kansas, Louisiana, Maine, Missouri, North Carolina, Nevada, Ohio, Oklahoma, Tennessee and Utah. The buyer will also purchase 38 depot locations in the U.S.

Hostess filed for Chapter 11 for a second time on Jan. 11, 2012. Hostess first filed for Chapter 11 as Interstate Bakeries Corp. on Sept. 22, 2004, in the U.S. Bankruptcy Court for the Western District of Missouri in Kansas City. The debtor exited from bankruptcy protection on Feb. 3, 2009.

Since its 2009 exit from Chapter 11, the debtor's financial performance hasn't kept pace with the projections set forth in its reorganization plan.

Hostess decided to liquidate on Nov. 16, one week after members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union began a strike at Hostess plants.

Corinne Ball, Heather Lennox, Lisa Laukitis, Steven Bennett, Todd S. Swatsler and Robert W. Hamilton of Jones Day are debtor counsel. The Jones Day team also includes John Kane and Bob Profusek.

FTI Consulting Inc. is the company's financial adviser. Perella Weinberg Partners LP is the debtor's investment banker.

William Randolph Smith, Olivier N. Antoine, Mika Clark and Ty Carson at Crowell & Moring LLP are serving as antitrust regulatory counsel to Flowers Foods.

Flowers Food's corporate counsel is Todd Meyers, Paul Rosenblatt, Ben Barkley, Miles Alexander, Stan Blackburn, Bill Brewster, Ted Davis and Virginia Taylor at Kilpatrick Townsend & Stockton LLP.

Tags: Chapter 11 | Ding Dongs | Dolly Madison | Drake's Coffee Cakes | FBC Georgia LLC | Flowers Foods Inc. | Gregory F. Rayburn | Hostess Brands Inc. | Judge Robert D. Drain | Twinkies

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Jamie Mason

Senior Editor: Out of Court Restructuring

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