Snokist bidding process unfair to potential buyers, groups say

YAKIMA, Wash. -- A bidding process for bankrupt Snokist Growers provides an unfair advantage for lead bidder Truitt Brothers, several groups argued before U.S. Bankruptcy Court on Tuesday.

Snokist is seeking court approval for a $42.5 million bid -- plus up to $3 million in deferred payments -- from the Salem, Ore.-based food processor that wants to relocate pear-canning operations to the Snokist facilities.

Other bidders have until mid-March to outbid Truitt Brothers, according to current guidelines proposed by Snokist last week. A bankruptcy judge will decide today whether to approve or modify the bidding process.

Del Monte Corp., which has canneries in Yakima and Toppenish and plans to submit a bid, says current guidelines create an uneven playing field.

For one, most of the bid to beat -- $37.3 million -- is secured debt that is contingent on Truitt Brothers receiving financing to pay off that debt, according to bankruptcy documents filed Tuesday.

"It doesn't seem reasonable to set $42 million dollars as the floor that other bidders need to beat as long as (Truitt Brothers') bid is contingent (on financing)," Del Monte attorney Deborah Kovsky-Apap said during a telephonic court hearing.

San Francisco-based Del Monte said other bids should be compared to Truitt Brothers' cash offer of about $5.15 million, she said. Del Monte plans to offer $11.5 million in cash.

Others that objected to the bidding process were the U.S. Trustee overseeing this bankruptcy case; Key Bank, one of Snokist's secured creditors and a group representing Snokist's unsecured creditors.

Most felt the proposed "break-up fee" -- an amount Truitt Brothers would receive if it is not the winning bidder -- was not justified. The fee is 2 percent of the winning purchase price. At the $42.5 million bid by Truitt Brothers, the fee would be $849,000.

In its objection, the trustee notes that since other companies have to outbid Truitt Brothers, the fee would actually be higher.

As a result, other bidders would have to offer an amount that would be higher than the sum of Truitt Brothers' $42.5 million bid, the break-up fee and an additional $100,000.

In a document filed Tuesday, Truitt Brothers clarified that it would be open to a break-up fee that just covered the actual expenses related to the bid, including due diligence, attorney fees, consulting fees and travel expenses. The company estimates that it has spent about $734,396 on the bid.

Snokist continues to maintain that the Truitt Brothers' bid -- which was announced last week at a meeting of the pear-canning industry -- will best satisfy creditors.

Snokist, which reported debt of nearly $50 million, filed for Chapter 11 bankruptcy in December after several months of battling with the Food and Drug Administration over the reprocessing of moldy applesauce and unsanitary conditions at its Terrace Heights cannery.

* Mai Hoang can be reached at 509-577-7685 or maihoang@yakimaherald.com.