Little Debbie Maker to Buy Drake’s From Hostess for $27.5 Million

Tuesday, 29 Jan 2013 07:12 AM

 

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Hostess Brands Inc. said United States Bakery Inc. offered to buy certain bread brands for $28.9 million and that McKee Foods Corp., maker of Little Debbie snacks, agreed to pay $27.5 million for its Drake’s brand.

“The contemplated purchase prices for Drake’s and the four bread brands, together with our previous announced stalking- horse bid for the majority of our bread business, means we have agreements to sell these assets for at least $440 million,” Hostess Chief Executive Officer Gregory F. Rayburn said Monday in a statement.

United States Bakery agreed to buy the Sweetheart, Eddy’s, Standish Farms and Grandma Emilie’s bread brands, four bakeries and 14 depots, plus certain equipment, according to court papers.

“The Drake’s brand has its roots in a family baking business, much like McKee Foods and the Little Debbie brand,” Mike McKee, chief executive officer of McKee Foods, said in an e-mailed statement. “We believe that Drake’s will have a strong future within our family of brands,” McKee added.

Drake’s products include Devil Dogs, Ring Dings, Yodels, Yankee Doodles, Sunny Doodles, Funny Bones and Drake’s Coffee Cake. McKee, based in Collegedale, Tennessee, will buy the brands and specific equipment, according to court papers. statement.

Bidding, Auction

A hearing to consider approval of bidding procedures is set for Feb. 11. Hostess has requested a March 15 auction date and a March 19 court hearing to authorize the sale to the highest or otherwise best bidders. The proposals are subject to court approval. The remaining bread brands, as well as the Hostess snack cake business, will be sold separately, according to the statement.

“This agreement, if successful, allows United States Bakery to continue our long range growth plans through acquisition and market expansion,” Bob Albers, the company’s chief executive officer, said in an e-mailed statement. “We believe the assets and brands will allow us to provide fresh baked Franz Bakery products to a wider and diverse geographical base.”

Wonder Bread

Flowers Foods Inc., based in Thomasville, Georgia, will serve as the lead, or stalking-horse, bidder for Hostess’s Wonder, Butternut, Home Pride, Merita and Nature’s Pride brands, 20 bread plants, 38 depots and other assets. Flowers is offering $360 million, plus $30 million for the Beefsteak brand. An auction is set for Feb. 28, followed by a hearing to authorize the sales.

Flowers Foods, established in 1919, produces and markets packaged baked goods for retail and food-service customers. The company’s top brands are Nature’s Own and Tastykake.

Hostess, the 82-year-old maker of Hostess CupCakes, Ding Dongs and Ho Hos, began to wind down in November after failing to reach an agreement with its bakers’ union on concessions to help the company emerge from its second bankruptcy. Changes in American diets led to years of declining sales at Hostess, while ingredient costs and labor expenses climbed.

A standoff with striking union workers triggered liquidation auctions of Hostess’s brands, recipes, plants and other assets. The Bakery Confectionery Tobacco Workers and Grain Millers International Union, which represented more than 5,000 Hostess workers, went on strike Nov. 9 after U.S. Bankruptcy Judge Robert Drain in White, Plains, New York, imposed contract concessions opposed by more than 90 percent of the union’s members.

Retiree Benefits

Hostess yesterday asked the bankruptcy judge for permission to stop providing benefits to retirees.

The projected cost of providing retiree benefits from June 2012 through this coming June is $1.1 million, or an average monthly cost of $94,100, according to company’s court filing. Because the benefits don’t add value to the estates and aren’t necessary to the company’s winddown, lenders have made clear that they won’t agree to continue to fund the benefits after the end of February, according to the filing.

The company hasn’t reached an agreement with unions on the matter, lawyers for Hostess said in the filing.

Previously known as Interstate Bakeries Corp., Hostess exited an earlier bankruptcy in 2009 under the control of buyout firm Ripplewood Holdings LLC and lenders. Hostess entered bankruptcy again in January 2012.

The case is In re Hostess Brands Inc., 12-22052, U.S. Bankruptcy Court, Southern District of New York (White Plains). The previous bankruptcy was In re Interstate Bakeries Corp., 04-45814, U.S. Bankruptcy Court, Western District of Missouri (Kansas City).

© Copyright 2014 Bloomberg News. All rights reserved.

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