OLD Media Moves

Long live Twinkies

November 20, 2012

Posted by Liz Hester

Last week, Hostess Brands Inc., the maker of beloved Twinkies snack cakes and the 1950s darling Wonder Bread, said it would close operations and sell assets after being unable to reach an agreement with its union workers.

All looked lost for the iconic Ho-Hos and that an entire generation of children would see the yellow cream-filled cakes only in history books. But all’s not lost. Here are new details from the Wall Street Journal:

Seeking to save more than 18,000 jobs, a bankruptcy judge surprised Hostess Brands Inc. and its warring union Monday by delaying the company’s bid to close its 85-year-old bakery business and sell off its factories, brands and other assets.

Instead, Judge Robert Drain asked both sides to join him Tuesday for a mediation session where he will try to broker a new contract. If Tuesday’s long-shot session fails, then the company will be able to return to court Wednesday to try to move ahead with its plans to close down.

Hostess had asked the U.S. bankruptcy judge for permission to liquidate, arguing that the bakers union’s more than week-long strike had left it unable to produce Twinkies, Ho-Hos, Wonder Bread and other longtime supermarket staples. Hostess said it didn’t have the financial wherewithal to continue operating amid the work stoppage.

“My desire to do this is prompted primarily by the potential loss of over 18,000 jobs,” the judge said during a hearing in federal bankruptcy court in White Plains, N.Y. He also cited his “belief that there is a possibility to resolve this matter notwithstanding the losses that [Hostess has incurred] over the last week or so and the difficulty of reorganizing this company.”

Hostess and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union agreed to the confidential mediation proceedings. If they don’t make progress, a hearing on Hostess’s liquidation request will resume Wednesday, the judge said. Meanwhile, the company’s plants remain closed and potential suitors are circling.

And a couple of details from the New York Times:

At the behest of the judge, Hostess Brands and the Bakery, Confectionery, Tobacco Workers and Grain Millers Union, which represents 5,600 Hostess workers, will meet with a mediator on Tuesday to try to narrow their differences toward a labor agreement.

If the mediation succeeds, it could prevent the liquidation of the company and save 18,500 jobs. Otherwise, Hostess is likely to auction off its well-known brands, leaving the fates of those workers in limbo.

In January, Hostess, an 82-year-old company, filed for Chapter 11, just three years after emerging from bankruptcy. At the time, the company said it was unable to pay its debts and needed to make deep cuts in labor costs to survive.

Hostess was able to reach a new contract with the Teamsters, its largest union. But talks between the company and the bakery workers deadlocked, and the union went on strike on Nov. 9. With production slowing and its finances dwindling, the company announced plans on Friday to liquidate.

But shutting down all those plants isn’t going to be cheap. Bloomberg lays out some of the costs of bankruptcy.

Hostess officials “have not demonstrated that the insider bonuses are permissible,” Davis wrote in a court filing. They also “improperly seek to exculpate and indemnify their management from past and future liabilities” and want to “cherry-pick which administrative claims get paid.”

In seeking court permission for its demise, Hostess said it wants to pay as much as $1.75 million in incentive bonuses to 19 senior managers during the liquidation. Hostess is asking the judge to approve its plan to shut 36 bakeries, 242 depots, 216 retail stores, and 311 hybrid depot-store facilities, according to court filings. The company has 58 other leased or owned sites used for storage, warehousing of products or parking.

The process requires “intensive” planning, staffing and funding, the company said. A fire-sale liquidation would damage equipment and result in improper disposal of waste materials.

It’s “not a simple matter of turning off the lights and shutting the doors,” Hostess said in court papers.

The baker estimated that shutting the plants will cost $17.6 million in the next three months. The plants have about $29 million worth of excess product ingredients, Hostess said.

About $6.9 million will be spent to close depots, while $8.8 million will be used to idle retail stores and $8.1 million will go to shutting corporate offices, according to a court filing. Perishable baked goods at retail stores will be sold at going-out-of-business sales, donated to charity or destroyed, Hostess said.

Here’s hoping they have a good mediator since there is much more than just the fate of snack cakes. Investors and the company stand to lose a lot of money, but more importantly the livelihoods of more than 18,000 people depend on it.

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