Hostess Cancels Drake’s Auction After Single Bid by McKee

Hostess Brands Inc. canceled an auction scheduled for tomorrow for its Drake’s snack-cake brand, saying McKee Foods Corp., maker of Little Debbie snacks, made the only qualified bid.

A $27.5 million offer from McKee was the only one received by the deadline, lawyers for Hostess said in papers filed today in U.S. Bankruptcy Court in White Plains, New York. The company confirmed McKee as the winning bidder in a statement.

“Accordingly, pursuant to the bidding procedures order, no auction will be conducted and buyer is the successful bidder,” Hostess’s lawyers said.

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.

“We know that Drake’s Cakes are unique baked goods that have a loyal following,” Chief Executive Officer Mike McKee said in an e-mailed statement. “We will strive to bake the Drake’s cakes, not just for taste and quality, but also to deliver on the memories of the loyal Drake’s fans.”

McKee, founded in 1934 by O.D. and Ruth McKee, offers more than 90 varieties of Little Debbie snacks and 32 varieties of Sunbelt Bakery snacks and cereals.

Eddy’s Auction

United States Bakery Inc.’s bid of $28.9 million for other Hostess businesses will be tested at an auction tomorrow. The company offered to buy the Sweetheart, Eddy’s, Standish Farms and Grandma Emilie’s bread brands, four bakeries and 14 depots, plus certain equipment.

Earlier this week, Hostess canceled a planned March 13 auction for most of its snack business, including Twinkies. A $410 million bid from Apollo Global Management LLC and C. Dean Metropoulos & Co. was deemed the only qualified offer for the business, which includes Hostess CupCakes, Ding Dongs and Ho Hos, along with assets including equipment and five bakeries.

Grupo Bimbo SAB won a Feb. 28 auction to buy the Beefsteak bread brand, beating an initial bid by Flowers Foods Inc. with a $31.9 million offer. The Mexico City-based maker of Sara Lee products, Entenmann’s cakes and Thomas English Muffins topped Flowers’s $30 million opening offer for the rye-bread brand, Hostess said in a Feb. 28 statement.

No rivals challenged Flowers’ $360 million bid for the majority of Hostess’s bread-making business, including its Wonder brand, and a planned auction was canceled.

Union Standoff

A standoff with striking union workers triggered liquidation auctions of Hostess’s brands, recipes, plants and other assets. The company entered bankruptcy in January 2012.

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 imposed contract concessions opposed by more than 90 percent of the union’s members.

The union said the bids for Hostess’s brands offer no guarantees for workers.

“While the debtor’s secured lenders may view these bids as the ‘best’ for getting themselves paid, these bids provide minimal assurance that the rights of the debtors’ workers will be protected,” the union and its pension fund said in court papers filed March 12. “Unfortunately, none of the proposed purchasers in any of the asset sales have committed to preserve a single job.”

In an interview yesterday on Bloomberg Television’s “In the Loop” with Betty Liu, Hostess Chief Executive Officer Gregory Rayburn said he didn’t think any of the buyers “engaged with the unions in terms of any go-forward plans.”

“That is an issue that is strictly up to the buyers,” Rayburn said.

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

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