Twinkies, Ding Dongs and Wonder Bread may soon be back in stores after a bankruptcy court judge on Tuesday approved sales of several iconic brands that had been owned by the failed Hostess Brands Inc. Buyout firms Apollo Global Management and Metropoulos & Co teamed up for Hostess’s snack cake brands, paying $410 million for Twinkies, Ho Hos, Ding Dongs and Donnettes. Flowers Food Inc, which makes Tastykakes snacks, picked up most of Hostess’s bread business, including its Wonder and Nature’s Pride brands for $360 million. The No. 2 U.S. baking company also bought 20 bakeries and other operations. [Tribune]
Lynnley Browning has an interesting article in DealBook about “supercharged IPOs” today. The gist is that some private equity portfolio companies go public, but keep in place agreements requiring them to pay over 85% of certain tax benefits that they receive to their former IPO owners. This, or so the argument goes, is both unfairsies – why do private equity firms get that money rather than the current shareholders? – and also, y’know, opaque secretive financial engineering etc. Viz.:
Now, buyout specialists are increasingly collecting continuing payouts from their former portfolio companies. The strategy, known as an income tax receivable agreement, has been quietly employed in dozens of recent offerings backed by private equity …
While relatively rare, the strategy, referred to as a supercharged I.P.O., has proved to be controversial. To some tax experts, the technique amounts to financial engineering, depriving the companies of cash. Berry Plastics, for example, has to make payments to its one-time private equity owners, Apollo Global Management and Graham Partners, through 2016.
“It drains money out of the company that could be used for purposes that benefit all the shareholders,” said Robert Willens, a corporate tax and accounting expert in New York who coined the term “supercharged I.P.O.” …
Another potential issue is that sophisticated investors do not necessarily understand the deals, either. The agreements typically warrant just a few paragraphs in a company’s I.P.O. filings.
So that last part, meh. The prospectus for Berry Plastics – the main example DealBook cites – describes its income tax receivable agreement in several places and pretty clearly. It explains what’s going on – “we’re funneling 85% of our tax savings from current NOLs to our pre-IPO shareholders” – and even gives some numbers, estimating that the payments will total $310 to $350 million and mostly be paid by 2016.1 It’s not really all that tricky. Read more »
Now that the Apollo and Metropolous & Co. have officially bought the Twinkie—in an auction that drew precisely one bid, theirs—the private equity firms have figured out how to turn around a company that other private equity firms couldn’t/ran into the ground.
First, they’re not going to rehire everyone. Second, they’re going to outsource distribution. Lastly, and most importantly, they’re going to hire Zach Galifianakis or Will Ferrell. Read more »
Howard Stern Has A Dream That Involves Leon Black Asking Him Why, If He Hasn’t Been Drinking, Does His Breath Smell Like Beer?By Bess Levin
“Leon throws some good parties, because Leon’s worth like twenty gazillion, like twenty billion or something crazy, and for him, you know, a billion dollars is like ten dollars to us,” Mr. Stern said on his Monday show on SiriusXM Radio, following Black’s 60th birthday party in Southampton. Mr. Black sits on the company’s board…Mr. Black had his backyard transformed into a faux nightclub setting, constructing a wooden deck over his swimming pool and building a tent for Mr. John’s concert. After a buffet of crab cakes and steak, partygoers sat on couches with big puffy pillows. They watched Mr. Black’s four grown children deliver touching toasts to their father, including a poem by the youngest son. “Oh, I wish I was Leon Black’s child,” Mr. Stern said on Monday. [Dealbook]
According to ESPN, talks between current owner Comcast-Spectacor and Harris are “ongoing” and a deal is “imminent.” [ESPN]
Hedge Fund Manager Elena Ambrosiadou Accused Of Hiring Extremely Skilled But Occasionally Scatterbrained Spy To Perform Recon On Former Employee, Ex-Husband (Update)By Bess Levin
Remember Elena Ambrosiadou? She’s the IKOS Asset Management chief who founded the London-based firm with her ex-husband, Martin Coward, in 1993, prior to their marriage hitting the skids and Coward quitting, which caused a bunch of investors to leave as well. Sometime after that Ambrosiadou made the executive decision to have the keys to a private jet Gover was flying confiscated, stranding him in France (with his new gal-pal) and firing the research team that worked under him. And according to one of the employees who got the boot, she was just getting started. Read more »
Auction-Rate Market Winners And Losers
By John Carney
As Credit Market Woes And Accounting Changes Drove Buyers Away, Some Firms Got Stuck Holding The Bag
Earlier this morning we discussed how changes in the way accounting rules treated auction-rate securities helped drive corporate investors out of the market. (For a rousing debate of exactly which accounting changes stamped out demand, click here.) Credit market concerns and the changes in the way auction-rate securities are treated on cash flow statements contributed to the rush out of the securities by bringing additional scrutiny to the once obscure financial instruments. At the end of 2007, many companies made the decision to shift assets out of auction rate securities as these changes were implemented for the new fiscal year.
The Apollo Group owned as much as $365 million in ARS at the end of 2007, according to a recent filing. But by February 19, 2008, all but $107 million of the ARS investments had been liquidated and not reinvested in the ARS market. Apollo says this well-timed exit was part of a plan to intentionally reduce its exposure to the auction rate securities, although they do not reveal what prompted the exit. The timing wasn’t perfect, however, and Apollo found itself unable to liquidate approximately $79 million in ARS due to auction failures.
Despite not completely exiting the ARS market, we’ll count Apollo a winner. So who’s still holding the securities? After the jump, we reveal two companies trapped by the auction failures.