Potential Buyers Line Up for Hostess Brands

Just as Americans were saying their emotional goodbyes to a cultural icon, the Twinkie, Hostess Brands Inc. made an encouraging announcement: More than 100 potential buyers are interested in purchasing the 82-year-old company’s brands. A financial adviser for Hostess revealed in bankruptcy court that five of the serious suitors include national retailers, including supermarkets.

The positive pronouncement was made while Hostess waits for its final approval for its wind-down, which was approved a week ago on an interim basis. The bakers union asked that an independent trustee be appointed by the judge to watch over the liquidation as they have not been satisfied with current management’s reorganization attempts.

Hostess Plans to Capitalize on Nostalgia

When talks of the possible liquidation of the all-American company began in mid-November, Twinkie fans turned to social media to mourn. Snack-cake enthusiasts posted their heart-felt farewells on Twitter and Facebook — and even started bidding on the final boxes of Twinkies on eBay.

Analysts said it is vital that the liquidation process — which will include the quick sale of Hostess brands including the traditional CupCakes, Ding Dongs, Ho Hos, Devil Dogs, Donettes and Wonder Bread — happens quickly.  A rapid sale will allow Hostess to capitalize on consumer nostalgia triggered by the November bankruptcy announcement.

Heather Lennox, a lawyer for Hostess, said the company has many potential buyers interested in several Hostess brands that may be sold at auction with initial bidders emerging in the next few weeks.

According to the Associated Press, Hostess adviser Joshua Scherer of Perella Weinberg Partners said the sale is a once-in-a-lifetime opportunity for buyers to acquire iconic brands without debt and expensive labor contracts that would come with the purchase of the company as a whole. Scherer indicated there is a party very interested in the Drake’s brand, and a quick sale is vital to maintaining worth. ‘‘The longer these brands are off the shelves, the less they’re going to be valued,” Scherer said.

Why Did the American Icon Fail?

Some analysts speculate Hostess faced bankruptcy because it had long suffered management issues and had failed to update its products. The company filed for its second Chapter 11 bankruptcy protection in three years in January, alluding to unionized work force and increased costs as contributing problems.

Some economists also attribute the struggle to high sugar tariffs intended to help protect local producers.

While Hostess was able to agree on a new contract agreement with the Teamsters, the bakers union did not accept the terms and walked off the job Nov. 9.  After losing about $1 million per day, Hostess opted to liquidate on Nov. 16. While sales have been waning over the years, they still added up to between $2.3 billion and $2.4 billion per year.

Hostess won approval in court to give its top executives $1.8 million in bonuses for reaching certain budget goals during the liquidation. Since the wind-down is estimated to take about a year, Hostess said the pay is incentive to retain the 19 corporate officers and high-level managers.

Long-Term Effects of Closing

While the wind-down will require about 3,200 workers, including nearly 250 people at the corporate level, the shutdown ultimately means a loss of approximately 18,000 jobs. According to a Hostess attorney, the company stopped contributing more than a year ago to its union pension plans and can no longer pay retiree benefits, which amount to about $1.1 million a month.

Scherer said in a normal bankruptcy, Hostess would be worth $2.3 billion to $2.4 billion, equal to its annual revenue. The company also has about $900 million of secured debt, however, and may have to face about $150 million of administrative claims.

Prior to shutting its doors, Hostess had about 36 plants, 565 distribution centers and 570 bakery outlet stores.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

Buyers for Hostess brands

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    Sources:

    1. Choi, C. (2012, November 29). Twinkies maker Hostess ready for its big bake sale. Retrieved from http://www.boston.com/business/news/2012/11/29/hostess-seek-approval-for-executive-bonuses/AnYdA7P2giL6RYJypXQ1dI/story.html
    2. ABC News. (2012, November 19). Twinkies May Find Buyer, Hostess CEO Says. Retrieved from http://abcnews.go.com/blogs/business/2012/11/twinkies-may-find-buyer-hostess-ceo-says/
    3. Reuters. (2012, November 21). Hostess Liquidation Proceeding; 'Flood of Inquiries' By Interested Buyers. Retrieved from http://www.courant.com/business/hc-hostess-mediation-1122-20121121,0,2300558.story