THOMASVILLE, GA. — The future of Koffee Kup Bakery took another turn on June 7 with the announcement that Flowers Foods, Inc. has acquired the company’s assets from the court-appointed receiver of the assets.
Based in Burlington, Vt., Koffee Kup Bakery is a manufacturer of baked foods, including bread, donuts and English muffins, serving customers in the Northeast and Mid-Atlantic regions. The company ceased operations on April 26 at its three baking facilities located in Brattleboro, Vt.; Burlington, Vt.; and North Grosvenor Dale, Conn.
“This acquisition brings brands and production capacity in the Northeast, a key growth market for our company,” said A. Ryals McMullian, president and chief executive officer of Flowers Foods. “The Koffee Kup and Vermont Bread Co. brands have a strong consumer following in the region, and we’ll be evaluating their role within our brand portfolio. We have no immediate plans to reopen the bakeries but will be assessing how they may fit our strategic network optimization efforts in the future.”
Founded in 1940 to make and deliver donuts by bicycle to mom-and-pop stores in Burlington, Koffee Kup Bakery received a boost following its acquisition of Vermont Bread Co. in 2013 and has since grown into a company distributing its products to more than 4,500 delivery points supported by a 135-route distribution network.
But the past month has been a difficult one for Koffee Kup. After abruptly ceasing operations on April 26, Matthew Chaney, an employee of Vermont Bread Co., filed a class action complaint on April 29 in the US District Court, District of Vermont against Koffee Kup Bakery seeking $5 million on behalf of the company’s 500 “similarly situated employees” who were terminated on April 26 with no notice for damages in the amount of 60 days’ pay and ERISA benefits. According to the lawsuit, Koffee Kup failed to provide the employees 60 days’ advance written notice as required by the federal Worker Adjustment and Retraining Notification Act (WARN). As part of the WARN Act, companies with more than 100 workers are required to provide 60 days’ notice of a plant closing and mass layoffs of 50 or more workers at a single site.
Almost immediately, a field of suitors emerged for Koffee Kup’s assets, including a few that thought they had the inside track on the business. Both East Baking Co. and Mrs. Dunster’s were approved for incentive money to make a purchase by the Vermont Economic Progress Council. Mrs. Dunster’s, a New Brunswick-based baking company run by husband-and-wife team Blair and Rosalyn Hyslop, went so far as to announce the formation of a new company on May 28 with the specific intent of acquiring Koffee Kup Bakery.
“We are thrilled to announce today that we have formed a new company, called North Atlantic Baking Co.,” Mr. Hyslop said on May 28. “We have been advised that North Atlantic Baking Co. is the preferred purchaser of the Koffee Kup assets, and we are focused on moving quickly to conclude negotiations, which will lead to restarting operations very soon.”
Mr. Hyslop said Mrs. Dunster’s plan was to operate the two Vermont bakeries and “enter discussions with third parties with the intent to sell the Superior Bakery in Connecticut.”
“North Atlantic Baking Co. is actively negotiating a leasing agreement with the receiver to facilitate a quick return to baking in the Burlington and Brattleboro bakeries; we are hopeful to have this completed within a few days,” Mr. Hyslop said. “The lease agreement will allow us to quickly get employees back to work and products back on the shelves while we work through the formal transferring of assets, the details of which have been largely agreed to.”
On June 8, Mr. Hyslop said Flowers Foods’ announcement came “completely out of left field,” and Mrs. Dunster’s is “shocked and dismayed that this offer was even considered after the completion of a fair and competitive process.”
In a statement, Mrs. Dunster’s said it had been advised by the receiver that it was the successful bidder and had begun working on agreements to finalize the transaction.
“All parties were aligned to the need to get employees back to work, so in the meantime we worked with employees, vendors, customers, and distributors to do just that,” the company said. “We were fully prepared to start operations on Tuesday morning, June 8, 2021, with purchase orders in hand, believing in good faith that the agreements we negotiated with the receiver would be signed Monday, June 7, 2021.
“Yesterday, we were shocked to receive an insensitive letter from the receiver revealing that over the weekend, Key Bank and the receiver had negotiated the sale of Koffee Kup Bakery to a new party. To our knowledge the new party did not participate in the original court sanctioned process and has no immediate plans to operate the bakeries.
“As a family-owned company, we stood with our integrity on full display in front of employees, customers, vendors, and distributors to restore hope for the future. A large team of dedicated people worked tirelessly under tight timelines with the aim to get the much beloved Koffee Kup Bakery back up and running. We are absolutely devastated for all the employees, vendors, distributors, and their local communities.”
Asked to comment on the Mrs. Dunster’s statement, Flowers said it first expressed interest in acquiring the assets of Koffee Kup Bakery more than a month ago.
“Flowers was involved in good-faith discussions concerning the purchase of the assets of Koffee Kup Bakery since April of this year with the owner at that time,” said Paul Baltzer, vice president, communications. “We had signed an NDA and were waiting to hear back regarding our interest in the assets. When it was announced that there was a preferred buyer, we were surprised – and realized the process had started moving forward without consideration of our interest. So, we immediately contacted the court-appointed receiver to ensure our offer was considered.”
The acquisition would be Flowers’ first in more than two years, or since Canyon Bakehouse LLC was acquired in December 2018, for $205.2 million total consideration. It also would be the first since Mr. McMullian became CEO in May 2019.
While merger and acquisition activity has been light the last couple years, the subject has remained top of mind for Flowers executives, Mr. McMullian said in a May 21 conference call with analysts.
“We have a long and successful track record in this regard and our solid balance sheet provides the flexibility to be aggressive where we have strong financial, commercial and operational conviction,” he said. “As the economy reopens, the pace of deal flow is increasing. And, as always, we are proactively seeking out potential deals, while maintaining our disciplined approach.”
Questioned by an analyst about potential deals, Mr. McMullian hinted that the hiatus in acquisitions by Flowers would not last much longer.
“Things are really heating up,” he said. “I mean since the first of the year. People sort of took a break largely last year. And there’s a lot of books flying out around out there right now. I’m sure you guys have read about some of the more public ones, but there's quite a bit of opportunity. The challenge, as it has been for the past few years, is valuation. We’re committed to maintaining our disciplined approach. We certainly have the balance sheet to lean in where we’ve got high conviction but we’re only going to do so in a reasonable way. And there’s always so far we’ll go and maintain our disciplined approach. So I’m pleased to see the opportunities start to come back. Certainly, we’re active. We remain active. And I think it will be a — I think, overall, it will be a very active year in the food space. There’s just a lot of money sloshing around out there trying to in a place to land.”