UPDATE 4-Twinkies maker Hostess wins court OK to close

Martinne Geller and Jonathan Stempel
Reuters Middle East

* Hostess expects to wind down over next year

* Lawyers, advisers see "flood" of interest in brands

NEW YORK, Nov 21 (Reuters) - Hostess Brands Inc won

permission from a U.S. bankruptcy judge on Wednesday to begin

shutting down and expressed optimism it will find new homes for

many of its iconic brands, which include Twinkies, Drake's cakes

and Wonder Bread.

U.S. Bankruptcy Judge Robert Drain in White Plains, New

York, authorized current management, led by restructuring

specialist Gregory Rayburn, to immediately begin efforts to wind

down the 82-year-old company, a process expected to take one


"It appears clear to me that the debtors have taken the

right course in seeking to implement the wind-down plan as

promptly as possible," Drain said near the end of a four-hour


The judge authorized Hostess to begin the liquidation

process one day after his last-ditch mediation effort between

the Irving, Texas-based company and its striking bakers' union

broke down. Drain said details of those talks are confidential.

Rayburn told the judge that about 15,000 workers will lose

their jobs immediately. Most of the remaining 3,200 will no

longer be employed after about four months.

"This is a tragedy, and we're well aware of it," Heather

Lennox, a lawyer for Hostess, told the judge. "We are trying to

be as sensitive as we can possibly be under the circumstances to

the human cost."

The union, the Bakery, Confectionery, Tobacco and Grain

Millers Union, has complained it should not be forced into new

wage and benefit cuts, on top of earlier give-backs, while top

executives rewarded themselves with higher pay, and that it was

"well aware" of the potential consequences of that stance.

The union said in a court filing that its sole objective was

to leave Hostess with "a real, rather than an illusory or

theoretical, likelihood of establishing a stable business with

secure jobs."

Union president Frank Hurt was not immediately available for


Hostess has about 36 plants, including three it decided to

close after the strike began, as well as 565 distribution

centers and 570 bakery outlet stores.

Speaking to reporters outside the courthouse, Rayburn said

he was disappointed that the mediation failed and that he plans

to move "extremely fast" to sell Hostess' assets. Asked which

bidders may fare best, he said: "The one that pays the most."


Lennox said Hostess has received a "flood of inquiries" from

potential buyers for several brands that could be sold at

auction and expects initial bidders within a few weeks.

Joshua Scherer, a partner at Perella Weinberg Partners,

which is advising Hostess, said the company was in "active

dialogue" over its Drake's brand with one "very interested"

party that had toured a New Jersey plant on Tuesday.

He said regional bakeries, national rivals, private equity

firms and others have also expressed interest in various brands

and that more than 50 nondisclosure agreements have been signed.

"These are iconic brands that people love," Scherer said.

While prospective buyers were not identified at the hearing,

bankers have said rivals, including Flowers Foods Inc

and Mexico's Grupo Bimbo SAB de CV were likely to be

interested in some of the brands.

Representatives of both companies did not immediately

respond on Wednesday to requests for comment.

Scherer said Hostess could be worth $2.3 billion to $2.4

billion in a normal bankruptcy, an amount equal to its annual

revenue. It also has about $900 million of secured debt and

faces up to about $150 million of administrative claims.

Scherer expects a discount in this case because plants have

already been closed and Hostess' value could fall further if the

liquidation were dragged out.

"I've had buyers tell me, 'Josh, the longer it takes ... the

less value I'm going to be able to pay you,'" he said.


At Wednesday's hearing, Drain addressed a variety of

objections to Hostess' plan, and rejected a request to convert

its Chapter 11 case to a Chapter 7 liquidation and substitute a

trustee for current management to conduct asset sales.

Drain called that proposal a "disaster for all concerned,"

saying "very quick and nimble movement" is needed to sell assets

before they lose value and fearing delays if a trustee were

brought in to start from scratch. He also said existing

management had behaved as a "true fiduciary."

Hostess decided to liquidate on Nov. 16, saying it was

losing about $1 million per day after the Bakery, Confectionery,

Tobacco and Grain Millers Union, representing close to one-third

of its workers, went on strike a week earlier.

The bakers union walked out after Drain authorized Hostess

to impose pay and benefit cuts, which the International

Brotherhood of Teamsters, Hostess' largest union, had accepted.

Many of the 3,200 workers expected to stay on will help shut

Hostess' properties and prepare them for sale. Hostess expects

to need only about 200 employees by late March.

Rayburn, a former chief restructuring officer for the

bankrupt phone company WorldCom Inc, said letting 15,000 workers

go helps preserve their ability to obtain unemployment benefits.

"I need to maximize the value of the estate, but I need to

do the best I can for my employees," he said at the hearing.

Hostess filed for Chapter 11 protection on Jan. 11, its

second bankruptcy filing in less than three years.

The case is In re: Hostess Brands Inc et al, U.S. Bankruptcy

Court, Southern District of New York, No. 12-22052.

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