The global economic crisis has had an effect upon many businesses internationally, with not even the strongest retailer safe in these difficult times. But it was a shock to learn that Hostess Brands, the US powerhouse which owns the Twinkies, Ho Ho’s and Wonder Bread products, had declared itself bankrupt and was beginning the liquidation process earlier this month.
Hostess is responsible for some of the most iconic snack brands on sale in the United States today, with Twinkies being a much sought after product the world over. Although not available in supermarkets, many independent retailers choose to import the cream filled sponge cakes thanks to a huge cult popularity here in the UK – although, thanks to import fees, the snack cakes are much more expensive this side of the Atlantic, usually retailing at around £1.80 per individual pack.
The bankruptcy crisis really began to bite when workers belonging to the Bakery, Confectionery Tobacco and Grain Millers Union embarked on strike action following a dispute regarding pay and pensions. As a result of the strike, Hostess made the decision to close three of its 36 US plants immediately, costing hundreds of jobs.
Yet this initial jobs loss fades into the background when the real toll on the US employment market is revealed – Hostess currently operates 33 plants, 565 distribution centres and 570 bakery outlet stores, all of which will eventually close as the brand owner winds down.
In all, this will mean that around 15,000 workers will lose their jobs in the immediate future as bankruptcy judge Robert Drain authorised management at Hostess to begin the liquidation process at the end of last week. While 3,200 workers will remain in place to assist with the winding down process, Hostess representatives estimated that only 200 employees will be required by early March, taking the jobs cull total up to 18,000 in the first quarter of 2013.
Yet there may still be some good news, as should an interested buyer step in the company’s assets, brands and employees could still be saved. Unlike the situation here in the UK, where electronics chain Comet has as yet failed to attract a successful buyer, there are currently over 100 different interested parties vying for a controlling share in the stricken company.
This figure includes at least five well known national retailers and, while no names have officially been released as yet, Hostess rivals such as Flower Foods Inc. and Mexican powerhouse Grupo Bimbo SAB de CV are heavily rumoured to be in the running to snap up some of America’s most notable brands.
Joshua Scherer, of Hostess’s advisory team at Perella Weinberg Partners, believes that, in a standard bankruptcy case, shareholders at Hostess could expect to see an overall sale total of between $2.3 billion and $2.4 billion – in other words, the same value as the Group’s annual income. However, as several plants have already shut down this value will be discounted slightly.
Furthermore, he has warned that if the liquidation process is drawn out bosses may see further drops in price for various brands, due to the risk that falling volumes of produce will leave a deficit in the market.
As the Group will be selling brands off individually, there will undoubtedly be a bidding war for the most popular products. Twinkies, for example, is hugely iconic and is bound to attract many buyers who will see the opportunity to increase their investment in years to come.
Mr Scherer is keen to emphasise the fact that anyone wishing to acquire a Hostess brand will need to have the financial means to back up their bid.
He says; “Not only are these buyers serious, but they are expecting to spend substantial sums.”
It appears, then, that contrary to rumours Twinkies will not be vanishing from the supermarket shelves of the United States any time soon. The real question is whether the buyer of this hugely popular brand will take up the opportunity missed out on by Hostess and begin retailing internationally.
Do you think all of Hostess’s most popular brands will manage to survive the fallout of the parent company’s demise, or will some slip through the net as buyers flock to the Twinkie and Drake’s auction instead? Would the successful buyer of these popular ranges have to be American, or do you think a UK buyer could expand the market and possibly provide a boost to the UK retail industry?
