* Hostess expects to wind down over next year
* Lawyers, advisers see "flood" of interest in brands
By Martinne Geller and Jonathan Stempel
NEW YORK, Nov 21 Hostess Brands Inc won
permission from a U.S. bankruptcy judge on Wednesday to begin
shutting down and expressed optimism it will find new homes for
many of its iconic brands, which include Twinkies, Drake's cakes
and Wonder Bread.
U.S. Bankruptcy Judge Robert Drain in White Plains, New
York, authorized current management, led by restructuring
specialist Gregory Rayburn, to immediately begin efforts to wind
down the 82-year-old company, a process expected to take one
"It appears clear to me that the debtors have taken the
right course in seeking to implement the wind-down plan as
promptly as possible," Drain said near the end of a four-hour
The judge authorized Hostess to begin the liquidation
process one day after his last-ditch mediation effort between
the Irving, Texas-based company and its striking bakers' union
broke down. Drain said details of those talks are confidential.
Rayburn told the judge that about 15,000 workers will lose
their jobs immediately. Most of the remaining 3,200 will no
longer be employed after about four months.
"This is a tragedy, and we're well aware of it," Heather
Lennox, a lawyer for Hostess, told the judge. "We are trying to
be as sensitive as we can possibly be under the circumstances to
the human cost."
The union, the Bakery, Confectionery, Tobacco and Grain
Millers Union, has complained it should not be forced into new
wage and benefit cuts, on top of earlier give-backs, while top
executives rewarded themselves with higher pay, and that it was
"well aware" of the potential consequences of that stance.
The union said in a court filing that its sole objective was
to leave Hostess with "a real, rather than an illusory or
theoretical, likelihood of establishing a stable business with
Union president Frank Hurt was not immediately available for
Hostess has about 36 plants, including three it decided to
close after the strike began, as well as 565 distribution
centers and 570 bakery outlet stores.
Speaking to reporters outside the courthouse, Rayburn said
he was disappointed that the mediation failed and that he plans
to move "extremely fast" to sell Hostess' assets. Asked which
bidders may fare best, he said: "The one that pays the most."
Lennox said Hostess has received a "flood of inquiries" from
potential buyers for several brands that could be sold at
auction and expects initial bidders within a few weeks.
Joshua Scherer, a partner at Perella Weinberg Partners,
which is advising Hostess, said the company was in "active
dialogue" over its Drake's brand with one "very interested"
party that had toured a New Jersey plant on Tuesday.
He said regional bakeries, national rivals, private equity
firms and others have also expressed interest in various brands
and that more than 50 nondisclosure agreements have been signed.
"These are iconic brands that people love," Scherer said.
While prospective buyers were not identified at the hearing,
bankers have said rivals, including Flowers Foods Inc
and Mexico's Grupo Bimbo SAB de CV were likely to be
interested in some of the brands.
Representatives of both companies did not immediately
respond on Wednesday to requests for comment.
Scherer said Hostess could be worth $2.3 billion to $2.4
billion in a normal bankruptcy, an amount equal to its annual
revenue. It also has about $900 million of secured debt and
faces up to about $150 million of administrative claims.
Scherer expects a discount in this case because plants have
already been closed and Hostess' value could fall further if the
liquidation were dragged out.
"I've had buyers tell me, 'Josh, the longer it takes ... the
less value I'm going to be able to pay you,'" he said.
"BEST" OUTCOME FOR FIRED EMPLOYEES
At Wednesday's hearing, Drain addressed a variety of
objections to Hostess' plan, and rejected a request to convert
its Chapter 11 case to a Chapter 7 liquidation and substitute a
trustee for current management to conduct asset sales.
Drain called that proposal a "disaster for all concerned,"
saying "very quick and nimble movement" is needed to sell assets
before they lose value and fearing delays if a trustee were
brought in to start from scratch. He also said existing
management had behaved as a "true fiduciary."
Hostess decided to liquidate on Nov. 16, saying it was
losing about $1 million per day after the Bakery, Confectionery,
Tobacco and Grain Millers Union, representing close to one-third
of its workers, went on strike a week earlier.
The bakers union walked out after Drain authorized Hostess
to impose pay and benefit cuts, which the International
Brotherhood of Teamsters, Hostess' largest union, had accepted.
Many of the 3,200 workers expected to stay on will help shut
Hostess' properties and prepare them for sale. Hostess expects
to need only about 200 employees by late March.
Rayburn, a former chief restructuring officer for the
bankrupt phone company WorldCom Inc, said letting 15,000 workers
go helps preserve their ability to obtain unemployment benefits.
"I need to maximize the value of the estate, but I need to
do the best I can for my employees," he said at the hearing.
Hostess filed for Chapter 11 protection on Jan. 11, its
second bankruptcy filing in less than three years.
The case is In re: Hostess Brands Inc et al, U.S. Bankruptcy
Court, Southern District of New York, No. 12-22052.