Hostess Brands Inc. on Wednesday won permission from a U.S. bankruptcy judge 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 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 year.
"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 hearing.
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.
Roughly 15,000 workers were expected to lose their jobs immediately, and most of the remaining 3,200 would be let go within 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 of this."
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 that 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 neither company responded 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.
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.
Hostess has about 33 plants, plus three it decided to close after the strike began, as well as 565 distribution centers and 570 bakery outlet stores.
Many of the 3,200 workers expected to stay on will help shut these 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 that letting 15,000 workers go now 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.
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.
