NEW YORK — The Official Committee of Unsecured Creditors in the Hostess Brands, Inc. bankruptcy case has filed a limited objection against the Irving, Texas-based baker’s motions to sell its bread brands to Flowers Foods, Inc., claiming, among other things, that the break-up fee is too high.

In a Jan. 22 filing with the U.S. Bankruptcy Court for the Southern District of New York, the committee objected to two features of the break-up fee included in Flowers’ bidding agreement. First, the committee said the amount of the break-up fee that Hostess’ proposes to award Flowers “is excessive and should be reduced.” Second, the break-up fee includes a “most-favored nation” provision that the committee said would give Flowers a windfall without conferring an equal benefit to Hostess.

“It (the fee structure) is based upon events that may occur in the future that have nothing to do with Flowers or the bread brands or Beefsteak transactions,” the committee said. “Moreover, the ‘most favored nation’ provision may chill bidding in future smaller transactions where a potential stalking horse bidder requires a higher break-up fee to cover its expenses, but the debtors’ ability to agree will be restricted by the unrelated requirement that they also increase Flowers’ break-up fee to the same percentage. Small transactions then become extremely costly, and, as a result, the debtors might lose out on potential asset sales.”

Flowers on Jan. 11 was selected as the stalking horse bidder for the majority of the assets related to Hostess’ bread business, including the Wonder, Home Pride, Merita, Butternut and Nature’s Pride brands. Under the agreement, Flowers would pay $355 million in cash (up to $360 million if certain license rights are included in the sale), for the brands, 20 baking plants, 38 depots and other assets. In the event a competing company outbids Flowers at a proposed Feb. 28 auction, Flowers would be entitled to a break-up fee of $12.6 million.

Flowers also 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 the stalking horse bidder, Flowers is entitled to a break-up fee of $1.05 million.

Instead, the committee in its Jan. 22 filing has proposed a lower break-up fee — $10 million for the bread brands purchase and $810,000 for the Beefsteak transaction, saying the revised figures are “more in line with the market for a transaction of this size and would require a party to bid $2.6 million less to top Flowers for the bread brands and $240,000 less for Beefsteak.”

“This results in $2.84 million in savings to the estates, while still more than adequately compensating Flowers, and should also result in a more competitive bidding process, leading to maximized value for the debtors and their creditors,” the committee said.

Elaborating on the “most favored nation” provision, the committee called it “highly unusual” and cited two reasons it should not be approved. First, the provision does not serve the purpose of a standard break-up fee, the committee said.

“The most favored nation provision would increase the amount of compensation to Flowers based on factors that have nothing to do with its costs in preparing and submitting its bids and, in fact, are unrelated to these transactions at all,” the committee said. “Given that the fixed break-up fee is already too high, the provision of this additional windfall recovery to Flowers represents an inappropriate burden for the estates.”

A second reason to reject the provision is that it may create an impediment to future transactions, the committee said.

“The provision is triggered by a sale aggregating as little as $10 million in amount,” the committee said. “As the court is aware, the costs of preparing bids are not necessarily directly proportional to the ultimate purchase price. Thus, in a $10 million transaction, the break-up fee may need to be proportionally larger than it would be in a $300 million transaction to provide an appropriate incentive to the stalking horse bidder. The most favored nation provision, however, would create a substantial financial penalty for the estate if the debtor sought to negotiate such a fee in a smaller transaction.

“For example, if the debtors propose a stalking horse transaction of $10 million and the potential bidder has incurred expenses of $500,000 to conduct due diligence on the debtors’ assets (which would not necessarily be inappropriate for a transaction of that size), the potential bidder will only commit to a stalking horse role with a 5% break-up fee.