IRVING, TEXAS -- Flowers Foods Inc., Thomasville, Ga., has emerged as the likely buyer for the majority of the bread assets of Hostess Brands Inc., Irving, according to announcements Jan. 11 by both companies.
According to Hostess, Flowers has been selected as the stalking horse bidder for the majority of the assets related to the company’s 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.
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.
“We are pleased with the Flowers offers and look forward to a robust auction process that will allow these iconic brands to continue and to maximize value for all of the company's stakeholders,” said Gregory F. Rayburn, chairman and chief executive officer of Hostess. “We also continue to negotiate with parties interested in purchasing our snack cake business and remaining bread brands and expect to select additional stalking horse bidders as soon as reasonably practicable.”
In its announcement, Flowers said it has signed a purchase agreement as the stalking horse bidder. The company said the move is consistent with earlier statements that it would explore acquiring certain Hostess assets if they were to become available. Flowers said it expects the transactions, which would be financed with cash on hand and debt, to be accretive to earnings in the first year, at the current bid price.
"This agreement is consistent with Flowers Foods' long-term growth objectives to reach significantly more of the U.S. population with its fresh breads, buns, and rolls," said George E. Deese, chairman and c.e.o. of Flowers Foods. "We believe these assets would enhance our ability, over time, to provide more U.S. consumers with quality baked foods at a good value through existing and new retail and food service customers.”
Hostess said it has sought approval from the U.S. Bankruptcy Court for the Southern District of New York for a Feb. 28 auction with a March 5 hearing to authorize the sale to the highest or otherwise best bidders. A hearing to consider the bid procedures motions is set for January 25. If the process is approved, the stalking horse bids will serve as the opening bid in the Feb. 28 auction.
The bidding process, known as a 363 auction with stalking horsed bidders, refers to sales of corporate assets under Section 363 of the Bankruptcy Code. The law allows a bankruptcy trustee or debtor-in-possession to sell the assets "free and clear of any interest in such property." The sale may be made to a “stalking horse” bidder, in this case Flowers, as a prospective buyer that will present with the seller a fully negotiated asset purchase agreement for approval by the court.
While the stalking horse bidder is subject to being outbid and must make public his bid, advantages of a 363 sale for the bidder include a provision for a breakup fee for the bidder’s costs if a higher bidder is ultimately accepted. The fee raises the bar for other would-be buyers.
The announcement did not detail which of the plants, which account for just over half of Hostess’ total of 36, would be included. Additionally, it is not clear how many of the acquired plants Flowers’ ultimately will choose to operate if it prevails in the auction.
Regional brands included in the agreement include Merita, strong in the Southeast, and Butternut, strong in the Midwest. Regional brands not part of the transaction point to the plants that are not part of the package. Among the excluded brands are Sweetheart and Eddy’s, in the Pacific Northwest and Intermountain region; Cotton’s, in the Delta states; and J.J. Nissen in the Northeast.
An additional uncertainty is the degree to which Flowers, because of competitive concerns, would gain Department of Justice clearance to operate in all of the markets covered in the transaction. While noting the transaction is subject to regulatory approval, Flowers said it expects the deal to close shortly after the court approves results of the auction.
Also unclear is what will happen to the national brands such as Beefsteak, Wonder and Home Pride, in markets where Flowers will not operate after a transaction is approved.
Nature’s Pride, included in the brands to be acquired, was subject of litigation between Flowers and Hostess when it was introduced around the time Hostess first emerged from bankruptcy in 2008. Flowers alleged the brand infringed on its anchor Nature’s Own brand.
Hostess said its financial advisor, Perella Weinberg Partners, conducted a bidding process that involved contacting 169 potentially interested parties, 87 of which signed confidentially agreements.
Flowers, together with Grupo Bimbo S.A.B. de C.V., had been frequently cited as potential bidders for the Hostess assets.
Jones Day provided legal advice to Hostess on the transaction. Flowers was advised by Deutsche Bank and Kilpatrick Townsend.
Hostess ceased operations at and sought permission to liquidate its baking operations Nov. 16 in response to strikes from bakery workers.