By: Scott St. Amand & J. Ellsworth Summers, Jr.
When Hostess announced last November that it would be shutting the doors to its factories, spooked by the news and likely addled by decades of cream filling, hoarders of Ho-Ho’s scurried to buy every brand name snack cake they could find, boosting the online sale of Twinkies alone by 31,000% in the first twenty-four hours. Naturally, the hysteria caused a convergence of conspiracy theories from the Ding Dong devotees, and suspicions rose that the Mayan 2012 prophesies were coming true: the end of the Devil-Dog days was indeed drawing nigh.
Hostess, however, is not a newcomer to financial distress. Throughout the early 2000s, the company’s confectionary debts continued to Sno-Ball, forcing the troubled company to twice file for Chapter 11 bankruptcy relief. Although the owners and the workers’ union engaged in lengthy negotiations in its recent iteration of insolvency, unlike its Twinkies, Hostess could not be preserved indefinitely.
Today, however, those Cup Cake connoisseurs can breathe a collective sigh of relief. The snack cake Armageddon has been averted by the most unlikely hero: Judge Drain.
Indeed, on March 19, Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York approved the $410 million bid of private equity firms Apollo Global Management and C. Metropoulos & Co. for Twinkies and Hostess’ other snack cake assets. Metropoulos is no stranger to resuscitating long-neglected brands. The company scored a big hit with Pabst Blue Ribbon, which they acquired in May 2010 – decades after PBR’s market share had gone flat.
Section 363 of the Bankruptcy Code provides an effective mechanism for distressed companies seeking to sell their assets and for buyers looking to purchase assets at potentially bargain prices. Because the sale effectively takes the place of a plan and disclosure statement, bankruptcy courts take extra care to ensure that creditor’s rights are not lost in the process.