Hostess Brands Closing for Good / liquidation Fails
 

November 16, 2012: 6:15 PM ET

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People love Twinkies, but don't eat them.

NEW YORK (CNNMoney) -- Hostess Brands -- the maker of such iconic baked goods as Twinkies, Drake's Devil Dogs and Wonder Bread -- announced Friday that it is asking a federal bankruptcy court for permission to close its operations, blaming a strike by bakers protesting a new contract imposed on them.

Hostess' nearly 18,500 workers will lose their jobs as the company shuts 33 bakeries and 565 distribution centers nationwide, as well as 570 outlet stores. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union represents about 5,000 Hostess employees.

"We deeply regret the necessity of today's decision, but we do not have the financial resources to weather an extended nationwide strike," said CEO Gregory Rayburn in a statement.

Hostess will move to sell its assets to the highest bidder. That could mean new life for some of its most popular products, which could be scooped up at auction and attached to products from other companies.

A letter that Hostess sent to its network of stores that carry its product said it expects "there will be great interest in our brands." But it said it could not give a time frame for when the sales would take place and when its products would be available again.

But even if those brands are bought and restarted, the Hostess workers will not get their jobs back.

Related: Hostess workers face tough job market

"It's been a very sad day," Rayburn told CNN. "I think that this was just a monumental failure on the part of everyone involved, and it was just the wrong outcome."

Hostess filed for bankruptcy in January, its second trip to bankruptcy court since 2004. It previously emerged from restructuring in 2009 after a four-and-a-half year process. The company is now controlled by a group of investment firms, including hedge funds Silver Point Capital and Monarch Alternative Capital.

Frank Hurt, president of the bakers' union, called the liquidation "a deep disappointment" but said his members weren't the ones responsible, blaming the various management teams in place at Hostess over the past eight years for failing to turn the firm around.

"Our members decided they were not going to take any more abuse from a company they have given so much to for so many years," Hurt said in a statement late Friday. "They decided that they were not going to agree to another round of outrageous wage and benefit cuts and give up their pension only to see yet another management team fail and Wall Street vulture capitalists and 'restructuring specialists' walk away with untold millions of dollars."

While approval of the bankruptcy court is needed before Hostess can start selling its assets in liquidation, the company said production at all of its bakeries stopped effective Friday, and that stores will no longer receive products from Hostess Brands after the final round of deliveries of products that were made Thursday night.

But products that are already in stores can be sold, and the outlet stores will remain open for about a week to sell the products they already have.

Hostess had annual sales of about $2.5 billion. The company said it had been making 500 million Twinkies and 127 million loaves of Wonder Bread annually before Friday's shutdown.

Its bread brands, including Wonder Bread, Nature's Pride and Butternut, make the company the No. 2 bread baker in the country, according to Symphony/IRI Group. Bimbo Bakeries, maker of the Arnold and Stroehmann brands, is the No. 1 bread baker.

The company had given a 5 p.m. ET Thursday deadline for the bakers to return to work or face a shutdown of the company.

In September, membership of one of its major unions, the International Brotherhood of Teamsters, voted narrowly to accept a new contract with reduced wages and benefits. The Bakers' union rejected the deal, however, prompting Hostess management to secure permission from a bankruptcy court to force a new concession contract on workers.

The Teamsters union, which represents 6,700 Hostess workers, issued a statement blaming mismanagement by Hostess executives for the company's problems. But it also was critical of the decision of Bakers' union, although it did not identify the union by name.

"Unfortunately, the company's operating and financial problems were so severe that it required steep concessions from a variety of stakeholders but not all stakeholders were willing to be constructive," said Ken Hall, the Teamsters' Secretary-Treasurer. "Teamster Hostess members, based on the facts and advice from respected restructuring advisors, understood what was at stake and voted to protect all jobs at Hostess."

Don't worry - Twinkies will survive

The new contract cut salaries across the company by 8% in the first year of the five-year agreement. Salaries were then scheduled to bump up 3% in the next three years and 1% in the final year.

Hostess also reduced its pension obligations and its contribution to the employees' health care plan. In exchange, the company offered concessions, including a 25% equity stake for workers and the inclusion of two union representatives on an eight-member board of directors. http://i.cdn.turner.com/money/images/bug.gif

First Published: November 16, 2012: 7:28 AM ET

Re: Hostess Brands Closing for Good / liquidation Fails
 

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NEW YORK (CNNMoney) -- Hostess Brands said Tuesday evening that a last-ditch mediation session with its bakers' union over a new contract imposed in bankruptcy court had failed, bringing the company closer to liquidation.

Hostess said in a brief statement that the mediation session "was unsuccessful," and that it had no further comment ahead of a hearing scheduled for Wednesday morning in bankruptcy court, where it has requested permission to liquidate.




Jeff Freund, a lawyer for the bakers' union, declined to comment, citing mediation ground rules.

Last Friday, management announced a shutdown of Hostess. They appeared before U.S. Bankruptcy Judge Robert Drain on Monday afternoon seeking approval to liquidate and sell off the company's assets. But Drain said he wanted the parties to try one last time to reach agreement, serving as the mediator at Tuesday's session.

Drain said he was motivated by the prospect of saving the roughly 18,500 jobs at Hostess, maker of Twinkies and Wonder Bread.

Only one day of talks was scheduled. Hostess CEO Greg Rayburn said Monday that the company would need an answer from the bakers' union on whether it would accept the new contract by the end of the day Tuesday.

With Tuesday's talks having failed, liquidation and the loss of Hostess' jobs appeared likely.

The bakers' union, which represents 5,000 of the 18,500 employees, went on strike on Nov. 9 to protest a new contract that imposed wage and benefit cuts. Other unions, including the International Brotherhood of Teamsters, had accepted the deal.

"As we said on Friday when the company announced it was closing, this is a tragic outcome and our thoughts and prayers go out to all Teamster Hostess members and all Hostess employees," Teamsters General Secretary-Treasurer Ken Hall said in a statement Tuesday. If the company goes into liquidation, its brands and recipes will be sold off to raise funds to pay creditors.

On Monday, private equity firm Sun Capital Partners told Fortune that it wants to buy Hostess as a going concern. It would reopen the shuttered factories, keeping the Hostess workers and their unions.

But others vying for the rights to Hostess products could simply produce them at their own facilities, leaving former Hostess employees out of jobs.