Milling & Baking News - February 5, 2013 - 14

Breaking up
Hostess

Regulatory review head start
major plus for stalking horses
THOMASVILLE, GA. — The position
of the stalking horse bidders in upcoming auctions for Hostess Brands,
Inc. assures the companies of a breakup fee if another buyer emerges as
the successful bidder. What could
truly give Flowers Foods, Inc., McKee
Foods Corp. and United States Bakery Inc. a “leg up” in their respective
bids for Hostess assets, though, may
be their head start in working toward
gaining regulatory approval.
In the case of Flowers, the Thomasville, Ga.-based company has been approved by Judge Robert D. Drain, U.S.
Bankruptcy Court for the Southern

District of New York (see related story
on Page 15). Announcing it had signed
a purchase agreement to acquire 20
baking plants and most of the leading
bread brands of Hostess, Flowers said
it “would expect to close the transactions shortly following court approval
if it is selected as the winning bidder.”
The company goes on to note the transactions are subject to regulatory clearance, which would include antitrust
review under the Hart-Scott-Rodino
Antitrust Improvements Act.

In a Jan. 11 document filed with the
U.S. Bankruptcy Court for the Southern District of New York, Joshua
S. Scherer, in a sworn affidavit describing the work of his firm Perella Weinberg Partners leading to the stalking
horse bid by Flowers, said “time is of
the essence” in bringing the liquidation
process to a close.
He said delays in the sale would result in diminished value.
“The longer Hostess’ bread products stay off the shelves (because they
are no longer being manufactured),
the more likely it is that consumers
will begin to use competitors’ products,” he said. “Indeed, bread is an
everyday staple consumer food product that is highly substitutable. In fact,
store shelf space formerly occupied by
Hostess bread products has already
been reallocated to other vendors.”
In a 2009 article in Antitrust magazine, published by the American Bar
Association, Malcolm R. Pfunder said
stalking horse bidders have the ability to file preregistration notification
under the H.S.R. Act before the auction is completed. The article by Mr.
Pfunder, now retired from the Washington law firm of Gibson, Dunn and
Crutcher, suggests that the waiting
period under H.S.R. for approval
of a Flowers/Hostess transaction or for

Bakers Fund engages investment banking ﬁrm
KENSINGTON, MD. — The Bakery and
Confectionery Union and Industry International Pension Fund (known as the
Bakers Fund) on Jan. 19 announced it has
hired Gordian Group L.L.C. in connection
with the Hostess Brands, Inc., bankruptcy.
Based in New York, Gordian Group
specializes in offering financial advisory
services in “distressed and complicated
situations.”
David B. Durkee, president of the Bakery, Confectionery, Tobacco and Grain
Millers Union, and chairman of the Bakers Fund, announced the Gordian engagement and described the move as part of an
effort “to preserve their jobs and pension
benefits, and assisting with the continuation of Hostess’ business and operations.”
“We are delighted to add Gordian’s
firepower to our advisory team,” he said.
“They have a long and excellent track record in distressed financial situations and
we are pleased that they are now working
with us.”
Peter Kaufman, president of Gordian and
14 / February 5, 2013 Milling & Baking News

head of restructuring and distressed mergers and acquisitions, described as “pivotal”
the importance of the bakery union working with the buyer(s) in order to “create the
opportunity to increase value.”
“Buyers should know that the bakers are very interested in having direct
discussions with them,” Mr. Kaufman
said. “Our mission here is a critical one,
and we aim to assist the bakers’ leadership and counsel in working with interested bidders to preserve jobs, providing
a seamless restart of baking operations,
and achieving the best possible outcome
for the bakers’ members under these difficult circumstances.”
According to the Bakers Fund, Gordian
is different from other investment banks,
in that it provides “conflict-free advice.”
“Gordian has no institutional loyalties
to funds or bondholders, including those
in the Hostess Brands capital structure,”
the Bakers Fund said.
The announcement of the Gordian engagement does not offer specifics into

the request of additional information,
may be well under way already.
“A stalking horse bidder typically
files its H.S.R. Act notification early, and
completion of that review is part of the
stalking horse’s advantage in the process, since other bidders generally will
have to include an H.S.R. condition and
a corresponding regulatory out in their
purchase offers,” Mr. Pfunder said.
Under the H.S.R. Act, the government (the Federal Trade Commission
and/or the Department of Justice)
normally has 30 days to respond to a
preregistration filing. Additionally, the
government normally may ask for additional competitive information, triggering a second 30-day waiting period
after the information is submitted, before a merger may be consummated.
In the case of a bankruptcy sale,
those periods are shortened considerably — 15 days for the initial waiting period and 10 days after the additional information is submitted. As
a result, it is possible in the case of a
Flowers filing that both waiting periods will have expired before the auction takes place Feb. 25, as is currently planned. Still unknown, though,
would be whether Flowers would be
able to resolve any competitive issues raised by the government and
how long that process would take. In
the case of the acquisition by Grupo
Bimbo S.A.B. de C.V. of the North
American fresh bakery business of
Sara Lee Corp., a full year elapsed

the mandate given by the Bakers Fund
to the investment bank. Nor does the announcement explain why Gordian has
been engaged at a late stage in the sale of
the Hostess Brands assets.
“The bakers are here to work with
bidders in any way as our sole goal is to
maximize jobs and pension benefits for
our members,” Mr. Durkee said. “We are
looking to support and work with wellcapitalized bidders.”
Background material offered by Gordian and its work lists Ben & Jerry’s ice
cream as a “representative engagement.”
In a summary of its work there, Gordian
said it was hired to evaluate strategic and
investment options to enhance shareholder value at a time when the company
was struggling with distribution.
Complicating the picture, Gordian
said, was the company’s “eclectic weighing of value, desire for independence and
social mission.”
Gordian said after a lengthy negotiating process “we were able to craft a viable
solution” in which Unilever acquired the
company at a premium price. MBN
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Milling & Baking News - February 5, 2013

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