Hope May Loom for Hostess

WHITE PLAINS, N.Y. -- Hostess Brands Inc. made headlines late last week when it announced it was closing up shop, but bankruptcy judge in New York is saying not so fast -- reportedly asking attorneys for both the company and its striking union to try to work things out.

According to a report by Dow Jones, at a hearing on Hostess' request to begin the process of shutting down its business, Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., asked attorneys representing Hostess and the Bakery, Confectionery, Tobacco Workers and Grain Millers International union whether mediation could help the two resolve their issues and avoid the loss of more than 18,000 jobs.

"To me not to have gone through that step leaves a huge question mark over this case, which I think -- I may be wrong -- but I think will only be answered in litigation. And that's no one's desired outcome," the judge said.

Hostess is in court today to begin the process of shutting down its business. Drain called a brief recess of Monday's hearing for Hostess and the bakers union to consider possible mediation. The two sides agreed, with mediation set for Tuesday afternoon.

Even if the call for mediation goes unanswered, it may not necessarily be the end for Hostess. Fortune magazine reported this afternoon that Sun Capital Partners was interested in acquiring the snack food company. The private equity firm, based in Boca Raton, Fla., privately expressed interest in acquiring Hostess earlier this year, according to the report, but the bakery's creditors chose for an alternate reorganization plan that ultimately failed. Following Friday's liquidation, Sun re-engaged by contacting Hostess advisor Perella Weinberg Partners. It also plans to contact the relevant labor unions.

"I think that we could offer a slightly better, more labor-friendly deal than what was on the table last week," says Sun co-CEO Marc Leder, in an interview with Fortune. "We also think that one point the unions have made is that there hasn't been a great amount of reinvestment in the business. We've found that investing new capital into companies like this can be very positive for brand, people and profitability... We would look to invest in newer, more modern, manufacturing assets that would enable the company to become more productive and to innovate."

Sun's earlier proposal would have maintained the existing lenders and would expect to do the same this time around. But Sun also believes that it could "make the company immediately profitable on an EBITDA basis," which could open the door for the current lenders to exit and new ones to step in.

Leder also thinks that Hostess would be a relatively easy company to restart, particularly given that most of its vendors still have empty shelves where Hostess products used to reside. Moreover, he doesn't buy the argument that Hostess is a long-term loser due to the changing American diet, the magazine said.

Hostess is not hurting for suitors. In addition to Sun Capital Partners, several other company names have been thrown in the mix. Nature's Own parent company Flower Foods and Mexico's Grupo Bimbo S.A.B. de C.V. have been mentioned in several media reports. Grupo Bimbo does seem unlikely, according to Hostess CEO Gregory Rayburn, because of anti-trust issue relating to its 2011 acquisition of part of Sara Lee Corp.

Last fall the U.S. Department of Justice (DOJ) approved an agreement for Grupo Bimbo to purchase Sara Lee's North American Fresh Bakery business for more than $700 million. As part of the agreement with the DOJ, Grupo Bimbo was required to divest certain brands and assets in Omaha, Kansas City, Oklahoma City and central Pennsylvania. In addition, Grupo Bimbo was required to divest certain assets and the perpetual rights to the Sara Lee and Earthgrains brands for fresh bread, buns and rolls in California, as CSNews Online previously reported.

Everyday consumers are even getting involved in trying to save Hostess. An online petition is asking President Barack Obama to step in "to immediately Nationalize the Twinkie industry and prevent our nation from losing her sweet creamy center."


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