If Twinkies can Survive Nuclear War, They can Survive This

If Twinkies can Survive Nuclear War, They can Survive This

Hostess, the brilliant minds behind the TwinkieTM, filed for a motion to wind down business operations as the result of being unable to reach an agreement with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM).  Though the company itself suffered from an inflated cost structure, their trade-marks, which include TwinkieTM, Ding DongsTM and WonderTM (bread), still have substantial value.  Therefore, though the company has been unsuccessful selling its assets as a whole, it might be successful in selling its brands.

On November 21, 2012 the U.S. Bankruptcy Court for the Southern District of New York accepted Hostess' motion, and the company began the process of selling their assets.

The market for well established brands appears to be quite good.  In 2009, Gordon Brothers Brands, LLC and Hilco Consumer Capital, L.P bought PolaroidTM adding to their collection of well-established brands bought from companies in bankruptcy.  Armed with the brands, Gordon Brothers and Hilco remarketed goods to consumers by changing the underlying business models, which failed, into ones that work.  By acquiring these well-established brands, companies such as Gordon Brothers and Hilco can capitalize on the consumer recognition of the product without needing to be burdened by any of the original company`s mistakes.

In the food market especially, selling food with a recognized brand appears to be crucial.  With grocery stores only stocking shelves with their highest selling products, it is becoming harder for midsize food companies to compete.  The result is that companies which offer fewer food products are selling their product brands to larger food companies.  One example, from earlier in 2012, is Proctor & Gamble who sold the PringlesTM brand and related assets to Kellogg’s for $2.695 billion dollars.

There are several food industry giants that might be willing to purchase the Hostess brands.  One obvious candidate is Flowers Foods (hereafter “Flowers”), a rival of Hostess, whose stock prices have jumped since the announcement of Hostess’s bankruptcy proceedings.  In 2011, Flowers bought the Tasty Baking Company when that company was in a similar financial state as Hostess.  With the purchase, Flowers gained access to the TastykakeTM brand, another fine example of a cream-filled confection.  When asked to comment about the purchase, George Deese, Chairman and CEO of Flowers Foods, said that “We recognize that consumers hold Tastykake in very high regard when it comes to product quality and freshness”.  Clearly, Mr. Deese recognized the advantage of purchasing an established brand.  Perhaps Flowers will end up taking the same view when it comes to the TwinkieTM, or other Hostess brands, should they decide to purchase any of their brands.  However, Flowers has yet to comment about the possibility of purchasing Hostess brands.

The drawback from buying brands rather than buying all assets of a bankrupt company is that employees are inevitably left without jobs.  During the winding down process, Hostess only intends to keep about 3,200 employees of the former 18,500 to assist in the process.  Of those that remain, 94% will find themselves unemployed within the first 16 weeks of the year-long process.  Since Flowers Foods recently acquired all assets of the Tasty Baking Company, it is doubtful that they would attempt to buy the Hostess assets as a whole as well.  If they decide to purchase any assets of Hostess, it will probably be limited to brands, and former employees of Hostess will be out of work.

Although it may not be Flowers, it does seem likely that Hostess brands like TwinkieTM will be bought by some other food company.  Those people who are thinking of buying boxes of Twinkies on eBay can relax - The Twinkie probably isn’t going anywhere anytime soon.

Adam Stevenson is a JD Candidate of Western University, faculty of law.