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Twinkie Maker Hostess to Close

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This is a Reblogged from WND.

Posted by RACHEL FEINTZEIG

Hostess Brands, the maker of iconic treats such as Twinkies and traditional pantry staple Wonder Bread, said Friday it is shuttering its plants and will seek to liquidate the 82-year-old business. Rachel Feintzeig reports on Markets Hub. Photo: AP.

Hostess Brands Inc., the maker of iconic treats such as Twinkies and traditional pantry staple Wonder Bread, said Friday it is shuttering its plants and firing about 18,000 workers as it seeks to liquidate the 82-year-old business.

The collapse and probable liquidation of Twinkie-maker Hostess Brands is a sobering reality check for unions and workers looking to shift the post-recession balance of power with private employers. Joe White has details on The News Hub. Photo: Getty Images.

The company, which filed for Chapter 11 in January, said it has requested bankruptcy-court authorization to close the business and sell its assets.

A victim of changing consumer tastes, high commodity costs and, most importantly, strained labor relations, Hostess ultimately was brought to its knees by a national strike orchestrated by its second-largest union.

Barrons.com Fund Columnist Brendan Conway joins the News Hub to preview the Friday markets; The Dow has been down six of the last seven sessions, Hostess liquidates after strike, and the White House talks ‘Fiscal Cliff.’ Photo: Getty Images.

Corporate Intelligence

In a letter posted on a new site set up to communicate with employees and suppliers through the liquidation process, Hostess’s CEO pinned the blame on its striking union.

The work stoppage, launched Nov. 9 by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union to protest a fresh labor contract, affected about two-thirds of Hostess’s 36 plants. The striking workers, which number in the thousands Hostess said in court filings on Friday, were making it impossible for the Irving, Tex., company to continue producing its baked goods, Chief Executive Gregory Rayburn said.

The CEO, a restructuring expert who took the top job at the company in March after its former leader abruptly resigned, said the wind down will take months and require few workers.

“We deeply regret the necessity of today’s decision, but we don’t have the financial resources to weather an extended nationwide strike,” Mr. Rayburn said on Friday. The company will “promptly” dismiss most of its 18,500 employees and focus on “selling its assets to the highest bidders,” he said. Hostess has said it couldn’t survive without the reductions and pension restrictions it sought from employees.

The new five-year contract a bankruptcy judge allowed Hostess to impose would have cut wages and commissions by 8% in the first year, and cut pension contributions and health-care benefits—givebacks Mr. Rayburn described as “deep.” The deal would cut costs by $200 million annually, Mr. Rayburn said, including $40 million a year in wage concessions and $75 million in pension-cost savings.

A representative for the bakers union couldn’t be reached to comment Friday. Bakers union leaders rejected Hostess’s latest contract as too laden with cuts and union president, Frank Hurt, called it “untenable.”

Ken Hall, the treasurer and general secretary for Hostess’s largest union, the International Brotherhood of Teamsters, said the timing of the closure “could not be worse as we enter the holiday season.”

“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,” Mr. Hall said in a statement. The union said it would look for asset buyers willing to hire some of its 6,700 members at Hostess.

Hostess’s remaining inventory—loaves of bread and plastic packages of icing-filled desserts—probably will be sold in bulk to a discounter or big-box store. The company will attempt to sell its plants and its brands, “everything and anything that we can,” Mr. Rayburn said in an interview Thursday, before the company disclosed it would shut down.

Hostess filed court papers on Friday seeking a bankruptcy judge’s approval to begin the wind-down. It estimates the process, which would wrap up operations at the company’s plants, depots, retail outlets and corporate offices, will cost some $41.3 million in the first 13 weeks and that the liquidation of its accounts receivables and inventory will generate about $77 million in the first 10 weeks. The entire process should take about a year, Hostess said, and will be financed in part by the company’s $75 million bankruptcy loan.

The company is also seeking permission to pay a group of 19 managers bonuses ranging from 25% to 75% of their annual base compensation. Those payments would total up to $1.75 million, the company said. In addition, it wants to pay 3,200 employees bonuses equal to 25% of what they will earn from Friday until their wind-down-related duties are completed. Those payments would total $4.36 million.

The company said that while it was unsuccessful in luring a buyer for the business as a whole, it had received some “potentially-viable proposals” for certain pools of assets. It hopes that chunks of the business will continue to operate in the hands of a new buyer.

Hostess’s current private equity owner, Ripplewood Holdings LLC, is unlikely to recover anything in the liquidation.

The fate of the company’s brands remains uncertain, set to be decided by a bankruptcy court auction run by Hostess’s investment bankers, or perhaps determined by a group of liquidators. Mr. Rayburn has said he is unsure if all of the company’s brands—there are about 30, from Drake’s to Ding Dongs—will sell or how much they might fetch.

On the one hand, the names have decades of brand equity, and there is “pretty significant demand” for the products, according to Mr. Rayburn. Hostess has revenue of about $2 billion annually. But a competitor would have to ramp up production if it took on the Twinkies or Ding Dong brands and give up valuable shelf space already devoted to its own goods, Mr. Rayburn noted.

The specter of liquidation has loomed large since the bankruptcy case, Hostess’s second in recent years, kicked off in January. From the start, the company has warned that labor cuts were its only chance to survive and said the only other possible outcome was a full shutdown of the business. Both Hostess and its largest union, the International Brotherhood of Teamsters, have long agreed a widespread strike would spell the end of the company.

But Hostess has threatened liquidation before in the case—and during its last stint in Chapter 11—and not followed through. Earlier this year, it said a vote against its last, best, final offer by either of its two largest unions would prompt an immediate liquidation. But when the bakers union gave Hostess just that trigger, Hostess instead decided to take its case back to the court.

At the time, Mr. Rayburn said he was changing course because of an unfair voting process that had been skewed by management, a claim bakers union president Frank Hurt denied.

The company’s roller coaster of a bankruptcy case nearly led it to reorganization. Months of negotiations, threats and labor trials ultimately led to new labor terms with the unions. Some, like the Teamsters, gave their support willingly, though begrudgingly, while the bakers union was forced by a judge to accept the new deal. It bristled at the forced terms and began striking last week.

“It’s just way, way over the top,” the bakers union’s Mr. Hurt said of the labor contract in an interview on Monday. The proposal garnered a near-unanimous rejection from members during a September vote. “It was an untenable proposal for our people,” he said.

Mr. Rayburn earlier this week called on employees to return to work, vowing to pull the plug on the business if he couldn’t get plants running again. As of Thursday morning, 13 plants were still operating below 50% capacity and three had been shut down—a sort of warning shot by the company that on Monday eliminated 627 jobs. Court papers indicate the company suffered $7.5 million to $9.5 million in losses as a result of the strike.

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Associated Press

Diana McKinley from the Seattle local 9 pickets on Thursday at Hostess plant in Sacramento, Calif.

Mr. Rayburn blamed a host of factors, from years of mismanagement to a lack of capital investment to legacy labor costs, for the demise of the company, which was founded in 1927 as Schulze Baking Co.

“I think there’s blame to go around everywhere,” he said. “There’s almost nowhere you can look that didn’t play a role in the company ending up in this position.”

Adam Hanft, a branding strategist behind Hanft Projects, sees the potential for new life in the liquidation of the decades-old company. A fresh owner of the intellectual property, which includes everything from names to recipes to graphics, could revitalize the Hostess brands, which Mr. Hanft sees as weakened but not lacking potential. He envisioned new flavors, limited-edition Twinkies, products co-branded with independent music groups and the potential for an international reach.

“Its nutritional emptiness in the right hands could be its core strength,” he said, explaining that a buyer that embraces the brand’s “kitschy,” “deliciously retro” feel could be rewarded with a hipster following. He foresees a potentially diverse crowd of bidders for the property.

“It’s the kind of iconic brand that might attract people who might not otherwise be interested in owning a consumer good,” Mr. Hanft said.

 

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3 thoughts on “Twinkie Maker Hostess to Close

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  3. Steve Schitt on said:

    This is another example, of the BAD side of UNIONS.. Demanding themselves right out of a JOB.. in the middle of the WORST RECESSION in U.S. HISTORY.. What a go unions..!!! i hope you’re all happy now.. California (where that striker in the Sacramento picture above is) has been doing it’s utmost, to drive every business possible right out of the state, from HIGH TAXES, to UNIONS.. And now with obama care due to close down even more businesses, i hope those unions that caused Hostess to close down, will enjoy themselves this Holiday season, as they spend the last of their severance pay, and stand in the unemployment lines, and apply for food stamps..!!! Years ago, i had a very bad, similiar experience, when a Union Strike crippled the town i was living in, and all the so called “union” workers (that were out on strike) took all the jobs that i would have gotten, after my non-union company went under.. Unions are a necessary evil sometimes, but in the case of Hostess, they really sunk their own ship… BOO …!!

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