Where Were You the Day the Twinkie Died?

Back in 2012 we were all hit with somber news. Something horrible had befallen one of our most treasured American icons. Of course, I’m talking about the death of our beloved Twinkies. As is always the case when tragedy strikes, people reacted in different ways. Some hoarded the Twinkies for personal use, others stockpiled them in hopes of selling them at profits that would make the most greedy of war profiteers green with envy. Many sobbed quietly to themselves as the remembered how the glorious cream-filled cakes had touched their lives.

But to paraphrase Mark Twain, rumors of the Twinkie’s death have been greatly exaggerated. In the snack food equivalent of a zombie apocalypse, Twinkies rose from the grave.

If you have been following my posts over the past decade or so, you know the Hostess Brands filed for bankruptcy and was been attempting to sell off its brands, including the iconic Twinkies. If you need to refresh your memory, just click the following links to learn:
The value of the Twinkies Trademark
The four ways the Twinkies brand could be acquired

In the end, it was through an auction that Twinkies were brought back from the dead and into the eager mouths snack food lovers everywhere. Two private equity firms, Metropoulos & Co. and Apollo Global Management, purchased the majority of the Hostess snack brands, including the Twinkies brand, for $410 million through the auction process.

The type of auction you can’t do on E-Bay

In the context of an acquisition, an auction is a sale process in which a seller solicits competing bids for a target company or business. In an auction, generally the seller controls the sale process (although in this situation, the process was also overseen by the bankruptcy court). Auctions allow sellers to maximize the purchase price and negotiate more favorable deal terms. Sellers also have more control over the due diligence process, including the number and scope of the documents disclosed and the amount of time bidders have to investigate the target company or business. An auction can take a few weeks or over a year; it just depends on what’s at stake.

While the actual process can be extremely complex, here is the process in a nutshell:

1. Generally, either party can initiate the auction:  The seller’s board of directors (or the governing equivalent) can authorize a potential sale or the potential buyers can solicit the transaction.
2. Confidentiality Agreements and a Bid Process Letter are exchanged and executed.
3. Due diligence occurs and the seller provides a draft transaction agreement.  Due diligence is an investigation of a business regarding its business, financial and legal matters so potential bidders have information to make an informed decision about the risk of the transaction.  Usually the seller discloses information to the potential buyers.  As lawyers, our part is called “legal due diligence,” which is generally used to:
   • Confirm that the parties have the legal ability to enter into the transaction.
   • Discover any impediments to the transaction, such as third party consents, regulatory constraints or prohibitions on transfer.
   • Unearth and analyze any unknown or contingent liabilities or risks such as pending litigation or tax liabilities.
   • Identify assets, existing debts, and extent of potential collateral.
4. Potential buyers secure financing and make bids.
5. The seller’s board then reviews the bids.  The board can decide to accept a bid; to grant exclusivity to a certain bidder and continue negotiating; to negotiate with several bidders; or to reject all the bids and terminate the auction process.
6. Assuming the auction is not terminated; the parties finish negotiations, seek the necessary approvals, and close the transaction.

Although there was an auction process with respect to Hostess (and the Twinkies brand), Metropoulos and Apollo Global Management were the only qualified bidders so they were automatically declared the winners of the auction.

And with that, Twinkies and their snack food friends were saved in the “Sweetest Comeback Ever.” Like zombies, Twinkies have returned from the dead and were back in stores on July 15th. However, unlike their zombie counterparts, Twinkies are not immortal and have a shelf life of roughly two months.

Update on the return of Twinkies

Metropoulos and Apollo Global Management didn’t hold onto the Twinkies brand for long. In 2023, J.M. Smucker acquired Hostess for $5 billion to expand into the roughly $65 billion snack market following high pandemic-era snacking demand. As it turns out, they should have asked Metropoulos and Apollo Global Management why they were willing to sell because this was a $5 billion mistake.

One of the biggest problems was the fact that, unlike long-shelf-life products like peanut butter or canned coffee that can last a year or more, Twinkies only last about 65 days before they go bad. This leaves very little wiggle room for logistics problems – which is exactly what Smucker’s faced.

Hostess IT systems had everything automated and running smoothly for Twinkies from creation to delivery. But Smucker’s IT systems weren’t able to adopt the same model and hiccups in the distribution systems caused disruptions, leading to late and incomplete retailer orders.

But this wasn’t the only problem Smucker’s faced because America’s eating habits were about to change. After the pandemic, a lot of those people who spent the lockdowns snacking returned to healthier eating habits. And right on the heels of that swing to healthier foods came the rise of GLP-1 medications and other weight loss drugs – which cause people to snack less.

As it turns out – buying an iconic brand may seem like a good investment, but running that brand successfully may not be as easy as it looks.