Not surprisingly, the plan to liquidate Hostess Brands has been approved:
A federal bankruptcy judge approved Hostess Brands’ plans to wind itself down, officially putting the Twinkies brand on the auction block.
In granting Hostess’ motion, Judge Robert D. Drain of 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 diminuition if this wind-down plan is not quickly implemented,” he said. “It appears to me that the debtors have taken the right course.”
During a hearing that stretched for more than four hours, company executives and advisers espoused a simple message: Expedited sales of the failed baked goods maker’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’ plans to liquidate, given that the value of its brands and assets had begun deteriorating since factory production lines shut down last 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 in his testimony that over the course of the 10-month-old Chapter 11 case, he had received six takeover bids — though none was 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 ranged from regional bakeries to national competitors to 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 are interested in buying some or all of Hostess’ 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 expects asset sales to reap “significant values,” perhaps more than $1 billion.
If this liquidation plan works out the right way, there’s the potential, but not the guarantee, that a good part of Hostess itself could be saved, and that many of the 15,000 people being laid off today could end up getting jobs again. However, I doubt anyone is going to be willing to take on the burden of the pension and union contracts that Hostess had spent most of the year before it filed for bankruptcy protection trying to negotiation changes to. We usually don’t get to see a rapid wind-down in action, so this could be interesting to watch.
