Hostess Says Justice Department Reviewing Flowers Deal

Hostess Brands Inc. Chief Executive Officer Greg Rayburn said Flowers Foods Inc.’s bid to buy most of the bankrupt baking company’s bread brands is going through U.S. Justice Department review.

Hostess is working closely with the department to clear “hurdles,” Rayburn said in an interview today on Bloomberg Television’s “In the Loop” with Betty Liu.

Flowers, based in Thomasville, Georgia, made the only qualified offer for Hostess’s Wonder, Butternut, Home Pride, Merita and Nature’s Pride brands, as well as 20 bread plants, 38 depots and other assets. Hostess, based in Irving, Texas, declared the $360 million bid the highest and best, eliminating the need for the scheduled Feb. 28 auction.

A March 19 hearing has been set in U.S. Bankruptcy Court in White Plains, New York, for review and approval of the purchase. The deal is also subject to regulatory approvals, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and closing conditions, Flowers said in a Feb. 28 regulatory filing.

Flowers, 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.

The planned sales of most of Hostess’s bread business shouldn’t be approved as currently structured because the buyers would be improperly released from liabilities and legal obligations, Manhattan U.S. Attorney Preet Bharara said in a March 1 objection to agreements reached with Flowers and Grupo Bimbo SAB, which plans to buy the Beefsteaks brand for about $31.9 million.

Environmental Laws

“The proposed sale order, as currently drafted, would diminish or eliminate the government’s ability to enforce generally applicable police and regulatory statutes and regulations, and diminish or eliminate the buyer’s and debtor’s obligations to comply with environmental, health and safety laws,” Bharara said in a court filing.

A standoff with striking union workers triggered liquidation auctions of Hostess’s brands, recipes, plants and other assets. The bakers union went on strike Nov. 9 after U.S. Bankruptcy Judge Robert Drain imposed contract concessions opposed by more than 90 percent of the union’s members.

The Flowers bid offers no guarantees for workers, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which represents the bakers, and their pension fund said in court papers filed Feb. 25.

‘Best’ Offer

“Any consideration of the ‘highest and best’ offer” for the bread businesses “must include consideration of the bidder’s commitment to the preservation of jobs, recognition of the rights of workers, and compliance with labor laws,” the union and pension fund said in court papers.

“I do not think any of the buyers have engaged with the unions in terms of any go-forward plans,” Rayburn said today. “That is an issue that is strictly up to the buyers.”

Hostess received stalking-horse bids of more than $56 million for Drake’s and four bread brands that it plans to auction on March 15. Other offers for those brands are due at 5 p.m. today.

“I expect we will get other bids,” Rayburn said.

McKee Foods Corp., maker of Little Debbie snacks, agreed to pay $27.5 million for Drake’s. United States Bakery Inc. offered to buy the Sweetheart, Eddy’s, Standish Farms and Grandma Emilie’s bread brands, four bakeries and 14 depots, plus certain equipment, for $28.9 million, according to court papers.

The case is In re Hostess Brands Inc., 12-22052, U.S. Bankruptcy Court, Southern District of New York (White Plains).

Before it's here, it's on the Bloomberg Terminal.