An Update on the Hostess Bankruptcy Situation

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An Update on the Hostess Bankruptcy Situation

What’s happening with America’s favorite pastry maker now?

Interstate Bakeries Files Chapter 11

About a month ago, Hostess Brands announced liquidation of the company. The famous maker of Twinkies, Hohos, Sno Balls, and Donettes (just to name a few) threatened to go out of business if the employee strikes continued.

The employees called the bluff and stayed on strike.

Sure enough, on November 20, 2012, Hostess liquidated the company putting 18,500 people out of a job. To get the full story, click HERE to read my blog on the details of the liquidation.

Shortly after the announcement, buyers began lining up. Initially, about two dozen companies began bidding on Hostesses assets, recipes, and such used to make the cakes and breads. Wal-Mart and Kroger were two of the 24 companies reported to be bidding.

Now reports say that as many as 160 potential buyers are in line to talk with the Twinkie company. Hostess’s temporary CEO, Gregory F. Rayburn remarked, “What has surprised us is the number of interested parties that are credible and capable.” Rayburn added that he was also encouraged because international companies had expressed interest, including two as far away as India.

Hostess CEO Gregory Rayburn at The Deal Economy 2013 from The Deal on Vimeo.

Rayburn spoke at Deal Economy 2013, a New York Stock Exchange event, less than two weeks ago and emphasized that the deal should be done QUICKLY. Rayburn’s thinking is that the emotion of losing these familiar brand names is strong, but will become less important to people as time elapses.

For me, I trade without emotion. It’s not that I don’t care about soft, springy Wonder Bread that I loved with PB & J as a kid, or that I won’t miss watching my Aunt Kathie devour yet another Hostess crème-filled Twinkie (that’s exactly what she calls it!). I just want to profit from this, so, without all emotions aside, I focus on this question:

Q: What is the potential impact on stocks if and when Hostess is sold to a large company?

A: The impact on stocks depends on what company or companies buy(s) Hostess and how the deal is structured. If a large company like WalMart, Kroger, or Target buys Hostess, I would see that as a positive addition to their product line, one that was well thought out by many layers of management with deep pockets and the ability to see and create a future for these legendary brands. In this instance, I would go long on the stock of $WMT, $TGT, $KR, or whichever giant buys Hostess, with the notion that the acquisition will serve to add profits to their bottom line.

Q: What about if it’s sold to a smaller company?

A: If some smaller, public companies scrape the funding together to buy Hostess, but don’t have the depth and the energy to make it all work, I would sell short the stock of those companies, believing Hostess would become a dead weight and a burden to their bottom line.

Q: What about if it’s sold to a privately held company?

A: If a private company buys Hostess then there wouldn’t be a direct impact on any stocks’ prices.

Jamie-Foxx-as-Ding-Dong-on-SNL-Weekend-Update

Bottom Line: The purchase of Hostess could happen quickly, even over the holidays. Be poised and ready to Buy Long or Sell Short, depending on the buyer’s identity. If Hostess is bought by a private company, then relax and emotionally enjoy your slice of fluffy Wonderbread, your piece of thick, strong Beefsteak bread, or your crème-filled Twinkie. After watching Jamie Foxx as a Ding Dong on SNL, I’m not sure if Hostess will ever be the same.