Hostess Picks Little Debbie Maker for Drake's

NEW YORK (AP) -- Hostess has picked the maker of Little Debbie as the lead bidder for its Drake's cakes.

According to a filing in U.S. bankruptcy court, McKee Foods has offered $27.5 million in cash for the cake brands, which include Devil Dogs, Funny Bones, and Yodels. The fate of Twinkies and other Hostess cakes are still being negotiated with other bidders.

The "stalking horse" bid by McKee would set the floor for an auction process that lets competitors make better offers. A judge would have to approve the final sale.

McKee's bid does not include the Drake's bakery in Wayne, N.J. A spokesman for Hostess said the company continues "to market all remaining assets."

McKee Foods, based in Collegedale, Tenn., makes a variety of snack cakes under the Little Debbie banner that compete with Hostess cakes at a lower price. For example, its Cloud Cakes resemble Twinkies and its Devil Cremes resemble Devil Dogs. A representative for McKee Foods, Mike Gloekler, said it was too early to say where it would make Drake's cakes, since the company didn't offer to buy the bakery.

He said it was a "quick reminder that we don't own anything yet." He also declined to say whether McKee would stop making any brands if the deal were to go through.

Hostess has said in court previously that it needed to move quickly in selling off its brands to capitalize on the outpouring of nostalgia and media coverage prompted by its demise. The company repeated the sentiment in its court filing Monday, noting that there is no advertising or marketing for Drake's brands, which also include Ring Dings, Sunny Doodles, and Yankee Doodles.

"The longer Drake's products stay off the shelves, the more likely it is that consumers will begin to use competitors' products," the filing said.

McKee generates about $1.1 billion in sales a year, with its Little Debbie cake division accounting for $800 million of that, according to the company. In recent years, McKee has seen its sales remain flat or fall as eating habits have changed.

Hostess Brands, based in Irving, Texas, announced in November that it was shutting down its business and selling its breads and snack cakes. The company's demise came after years of management turmoil and turnover, with workers saying the company failed to invest its brands. Hostess filed for its second Chapter 11 bankruptcy in less than a decade this January, citing costs associated with its unionized workforce.

Earlier this month, Hostess picked Flowers Foods (NYSE: FLO  ) , which makes Tastykake and Nature's Own and Bunny bread, as the lead bidder for six of its major bread brands, including Wonder.


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