Hearing on Plan to Sell Assets of Knudsen Ordered Speeded Up
The sale of nearly half of struggling Knudsen Foods to Hughes Markets and Kraft Inc. for $68 million cleared a hurdle Thursday when a federal bankruptcy judge shortened the waiting period required before the sale is reviewed by the court.
But the proposed sale was criticized by an investor group that says it is willing to make a higher bid for the same assets that Hughes and Kraft are buying.
In a joint agreement announced Wednesday, Kraft and Hughes signed a letter of intent to buy three plants in Los Angeles as well as plants in Visalia, Modesto, Fresno and Las Vegas. Hughes will own some of the plants while Kraft, a unit of Dart & Kraft, will own others and will contract with Hughes for some cultured products from one Hughes-owned plant in Los Angeles.
The proposed sale will save more than 1,500 jobs and will ensure the survival of the Knudsen and Foremost brands. Kraft and Hughes will pay $68 million and will buy the inventory of some of the plants, but no value was placed on the inventory in the letter of intent filed in bankruptcy court Thursday.
Knudsen Foods is still trying to sell the remainder of its business to various buyers but has not reached any agreements. Knudsen has been operating under Chapter 11 of the U.S. Bankruptcy Code since Sept. 17. Under Chapter 11, a company continues in business but is protected from its creditors while it works out a plan to pay its debts.
Bankruptcy Judge William Lasarow approved Knudsen’s request for a speedy hearing on the proposed sale and set the hearing for Oct. 2. The U.S. Bankruptcy Code usually requires 20-day waiting period so that creditors can be notified of a sale.
J. Ronald Trost, a lawyer representing Kraft, said that Knudsen essentially held an “auction” of the company in the Century City law offices of Irell & Manella from Saturday until Tuesday. Prospective buyers were housed in various rooms on three floors of the law offices, and lawyers shuttled among the buyers, he said.
But an investor group led by well-known New York bankruptcy lawyer Lewis Kruger complained that the process was not really an auction because his group was not allowed to make a bid even though members showed up at the law offices on Sunday, Monday and Tuesday.
Higher Bid Possible
“I was really stunned, I must tell you, that no one ever asked us how much we wanted to bid,” Kruger said in an interview.
“We are prepared and will in court make a higher and better offer than they (Kraft and Hughes) have made,” Kruger said. Kruger did not reveal the size of the offer.
Kruger’s group also includes his company, AMA Management, and Adler & Shaykin, a New York investment banking firm that specializes in leveraged buyouts. J. Gary Shansby, former chairman and chief executive of Shaklee Corp., would run the business if the group’s bid were successful.
Stephen Feldman, a lawyer representing Knudsen, said in court Thursday that new offers should not be received in court in order to protect the integrity of the negotiating process. “We didn’t enter into this transaction without negotiating with a number of other parties,” he said.
Trost said Kraft and Hughes might withdraw its $68-million offer and make a lower bid if the assets were reopened to competitive bidding.
Judge Lasarow told a lawyer for an unofficial committee of unsecured creditors that it is their responsibility to try to find other, higher bids for the assets but to tell potential bidders that those offers might not be accepted on Oct. 2.
