A federal bankruptcy judge approved Hostess Brands’ plans to wind itself down, officially putting the Twinkies brand on the auction block.
In granting Hostess’s motion, Judge Robert D. Drain of the Federal Bankruptcy Court for the Southern District of New York cited the need for a quick and orderly shuttering of the company to avoid letting its assets molder. The alternative, a less-structured Chapter 7 liquidation would be far worse.
“This estate will suffer substantial diminution if this wind-down plan is not quickly implemented,” he said. “It appears to me that the debtors have taken the right course.”
Judge Drain’s motion spells the almost certain end of Hostess, an 82-year-old bakery that survived the Great Depression, numerous wars and countless low-carb diets. But the company, whose stable of sugary confections also include Ho Hos and Ding Dongs, struggled for more than a decade with the public’s increasing fondness for lower-calorie, less-processed snacks.
During a hearing that stretched for more than four hours, company executives and advisers espoused a simple message: expedited sales of the company’s brands will raise the maximum amount of money possible. And letting Hostess begin shutting its doors for good sooner would be kinder to employees.
Advisers sounded confident that the liquidation process, which is expected to take about a year, could yield big recoveries for creditors.
“Since we filed motion, we have received a flood of inquiries and think there can be a healthy competition,” Heather Lennox, a lawyer for the company, said at Wednesday’s hearing.
Hostess’ chief executive, Gregory Rayburn, testified in court on Wednesday that he needed to lay off 15,000 of the company’s 18,500 employees that afternoon, so that they could begin applying for unemployment benefits. Such speed, he said, was necessary for maximizing the value of what remained of the 82-year-old company.
“From this point forward, I need two things to happen,” he said. “I need to maximize the value of the estate, and I need to do the best thing for the employees.”
He also asked the court to quickly approve Hostess’s plans to liquidate, given that the value of its brands and assets had begun deteriorating since factory production lines shut down on Friday.
“The longer you’re off the shelf, the less value you’re going to get,” Mr. Rayburn said.
An investment banker for Hostess contended that, at this point, the company could fetch significant sums for its host of sugary treats. Joshua Scherer of Perella Weinberg Partners testified that over the course of the 10-month-old Chapter 11 case, he had received six takeover bids — though none were acceptable.
Since Hostess announced its intentions to liquidate, it has received expressions of interest from a wide range of potential buyers. Without naming names, Mr. Scherer said that they included regional bakeries. national competitors and retail customers along the lines of Wal-Mart Stores and Kroger.
The banker added that his firm plans to reach out to approximately 145 financial firms, including private equity shops and liquidators, to gauge their interest. Investment concerns like Sun Capital Partners and C. Dean Metropoulos & Company, the owner of Pabst Blue Ribbon beer, have already said that they were interested in buying some or all of Hostess’s remains.
(Sun Capital has said that it would like to buy all of Hostess, not only preserving the company but also improving its toxic relationship with employee unions.)
Mr. Scherer said that he expected asset sales to reap “significant values,” perhaps more than $1 billion.
The hearing followed a last-minute mediation session between Hostess and its bakery employees union on Tuesday. That gathering, convened at the behest of Judge Drain, was meant to resolve a nearly two-week-old strike that company executive said fatally crippled its operations.
But after several hours of negotiations, the mediation talks collapsed.
“I wanted to acknowledge the tragedy that’s taking place here,” Richard Seltzer, a lawyer for the Teamsters, one of the company’s major unions, said in court.
DealBook: Judge Approves Hostess Brands' Plan to Close Down
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DealBook: Judge Approves Hostess Brands' Plan to Close Down
