IRVING, TEXAS — As the stalking horse bidder for the Beefsteak bread brand of Hostess Brands, Inc., Thomasville, Ga.-based Flowers Foods, Inc. has positioned itself to significantly expand its presence in the rye bread category. Flowers Foods currently offers New York Style Jewish Rye under the Cobblestone Mill brand, as well as three rye bread products under the European Bakers brand.

On Jan. 11, Flowers was selected as stalking horse bidder for the Hostess Beefsteak bread brand in a transaction that would carry a purchase price of $30 million but would not include facilities or additional assets. As part of the purchase agreement, Flowers has agreed to a “good faith deposit” of 5%, and as the stalking horse bidder is entitled to a break-up fee of $1.05 million (i.e., 3.5% of the $30 million initial cash consideration) in the event Hostess accepts a competing bid at an upcoming auction for the assets.

Hostess has proposed an auction date of Feb. 28 with a March 5 hearing to authorize the sale to the highest or otherwise best bidders. The transaction is scheduled to close no later than April 30.

“Beefsteak has had a strong, established position in the Northwest and Midwest, representing almost half the dollar share of rye bread in Detroit, Cincinnati, Milwaukee, St. Louis and Chicago, and is currently the largest volume selling rye bread in the country,” Hostess noted in a Jan. 11 filing with the U.S. Bankruptcy Court for the Southern District of New York.

Beefsteak has been sold out of Hostess’ facilities in Biddeford, Maine, and Hodgkins, Ill. The brand is distributed to a diversified customer base, including Wal-Mart Stores, Inc. and Stop & Shop.

According to data from SymphonyIRI Group, a Chicago-based market research firm, Pepperidge Farm was the top-selling rye/pumpernickel bread brand with dollar sales of $59,480,520 and unit sales of 16,449,590 in the 52 weeks ended Dec. 23, 2012. Beefsteak was No. 2, with dollar sales of $49,231,140 and unit sales of 14,549,510. Flowers Foods Cobblestone Mill rye bread had dollar and unit sales of $4,544,098 and 1,615,633, respectively, during the 52-week period.