IRVING, Texas -- Hostess Brands Inc.'s bid to sell its bread brands to Flowers Foods Inc. has hit a roadblock with unsecured creditors objecting to the breakup fees Flowers is entitled to for being appointed as the initial or "stalking-horse" bidder, reported Reuters.
The breakup fees is too high and contains an unusual "most favored nation" provision that gives Flowers a windfall without conferring an equal benefit to Hostess, a committee representing unsecured creditors said in its objections filed on Tuesday.
Flowers on Jan. 11 agreed to buy Wonder and other well-known bread brands from Hostess for $360 million as well as its Beefsteak brand for another $30 million.
The Flowers purchase is subject to higher bids at a court-supervised auction, and the company is entitled to a breakup fee of $12.6 million for the bread brands and $1.05 million for the Beefsteak brand.
The committee said the fee is too high and will hamper bidding and wants the bankruptcy court to reduce the breakup fee to $10 million for the bread brands and $810,000 for the Beeksteak brand.
Irvin, Texas-based Hostess, known for its Twinkies snack cakes, in November decided to shut down its baking business and liquidate after a strike by its bakers union crippled the 82-year-old company.
The unsecured creditors committee also said in its objections the "most favored nation" provision is highly unusual and inappropriate as it alters established market practice and gives Flowers additional financial windfall in case of future events that may take place.
Under the provision, if Hostess were to propose another sale for a price exceeding $10 million with a breakup fee of more than 3.5%, Flowers would be entitled to an additional cash payment equal to the difference between the amount of the breakup fee calculated at 3.5% rate and the higher rate.
The case is In re: Hostess Brands Inc et. al., U.S. Bankruptcy Court, Southern District of New York.
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