WHITE PLAINS, N.Y. — Hostess Brands Inc. on Wednesday appeared headed toward a liquidation, though its lawyers and advisers expressed optimism that they 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, N.Y., held a hearing to consider initial approval of the 82-year-old company’s plan to wind down over the next year.
Drain’s last-ditch mediation to resolve Hostess’ differences with its striking bakers’ union had broken down Tuesday.
“Unfortunately, we’re faced now with the matters that were originally scheduled for Monday and were adjourned to today, to deal with the issues facing the debtor in their need to preserve and … maintain their value in a liquidation scenario,” Drain said.
Drain had hoped to protect the more than 18,000 jobs at stake, approximately 400 of which were located in a 14-year-old, 280,000-square-foot commercial baking facility in Biddeford, where members of the Bakery, Confectionery, Tobacco and Grain Millers Union have been striking for approximately 10 days.
Repeated attempts to reach John Jordan, the baker union’s local business agent in Biddeford, were unsuccessful.
Heather Lennox, a lawyer for Hostess, told Drain that the company has received a “flood of inquiries” from potential buyers for several brands that could be sold at auction and expects initial bidders to surface 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 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.
It was not immediately clear if any buyers had expressed interest in the Maine-based J.J. Nissen brand.
“These are iconic brands that people love,” Scherer said.
As for the value of the company, 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.
But 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.
Striking workers on the Biddeford picket line also were concerned the liquidation process would be dragged out. David Wambolt, one of the striking employees, on Tuesday said the company had already dropped him from the health insurance plan.
“Our insurance is supposed to last through the rest of the existing month, which is November, and they cut us off last week,” said Wambolt, adding that his wife discovered the fact when picking up a prescription for one of their three children.
He said he’s not sure what he’s going to do in the meantime, while the liquidation process continues.
“Everything is being held up by the company because they won’t tell us if they’ve laid us off or what they’re doing. There are programs out there where we could find some help to get insurance, but everybody wants that same slip of paper saying your separation from work,” he said. “The company is dragging their feet through the court and … we’re all waiting and wondering what to do. We can’t get our unemployment because of how they’re dragging things along; we can’t get insurance for our families while they’re dragging it along. We’re stuck right now. It’s too bad.”
Hostess decided to liquidate on Nov. 16, saying it was losing about $1 million per day after the bakers union, representing close to one-third of its roughly 18,000 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.
As part of a liquidation, the Irving, Texas-based company would immediately terminate about 15,000 employees.
It said it expects to keep about 3,200 workers to help shut its properties and prepare them for sale, but that only approximately 200 people would remain employed by late March.
Hostess had 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.
Reuters writers Adam Kerlin and Peter Rudegeair, and BDN staff photographer Troy R. Bennett, contributed to this report.