Twinkies maker Hostess lives at least another day

Twinkies will live to see another day.
Associated Press
Nov 20, 2012

 

Hostess Brands Inc. and its second largest union agreed on Monday to try to resolve their differences after a bankruptcy court judge noted that the parties hadn't gone through the critical step of private mediation. That means the maker of the spongy cake with the mysterious cream filling won't go out of business yet.

The news comes after the maker of Ho Ho's, Ding Dongs and Wonder Bread last week moved to liquidate and sell off its assets in bankruptcy court. Hostess cited a crippling strike started on Nov. 9 by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which represents about 30 percent of Hostess workers.

"Many people, myself included, have serious questions as to the logic behind this strike," said Judge Robert Drain, who heard the case in the U.S. Bankruptcy Court in the Southern District of New York in White Plains, N.Y. "Not to have gone through that step leaves a huge question mark in this case."

The mediation talks are set to take place Tuesday, with the liquidation hearing set to resume on Wednesday if an agreement isn't reached. Jeff Freund, an attorney for the bakers union, said any guess as to how the talks will go would be "purely speculative."

In an interview following the hearing, Hostess CEO Gregory Rayburn said that there is enormous financial pressure to come to an agreement with the union by the end of the day Tuesday.

He noted that it's costing Hostess about $1 million a day in payroll costs alone to stay alive, with the money mostly going toward management to unwind the company. About 18,000 workers were sent home Friday after the company shuttered its 33 plants, meaning no sales are being generated.

"We didn't think we had a runway, but the judge just created a 24-hour runway," said Rayburn, who added that even if a contract agreement is reached, it's unclear whether all Hostess plants will get up and running again.

Hostess, weighed down by debt, management turmoil, rising labor costs and the changing tastes of Americans, decided on Friday that it no longer could make it through a conventional Chapter 11 bankruptcy restructuring. Instead, the company, which is based in Irving, Texas, asked the court for permission to sell its assets and wind down its business.

The company, which is in its second bankruptcy in less than a decade, had said that it was saddled with costs related to its unionized workforce. It brought on Rayburn as a restructuring expert in part to renegotiate its contract with labor unions.

Hostess, which had been contributing $100 million a year in pension costs for workers, offered workers a new contract that would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits. The baker's union rejected the offer and decided to strike.

By that time, Hostess had reached a contract agreement with its largest union, the International Brotherhood of Teamsters, which urged the bakers union to hold a secret ballot on whether to continue striking. Although many workers in the bakers union decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels.

Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow. The bakers union said the company's demise was the result of mismanagement, not the strike. It pointed to the steep raises executives were given last year as the company was spiraling down toward bankruptcy.

The company's announcement last week that it would move to liquidate prompted people across the country to rush to stores and stock up on their favorite Hostess treats. Many businesses reported selling out of Twinkies within hours and the spongy cakes turned up for sale online for hundreds of dollars.

Even if Hostess goes out of business, its popular brands will likely find a second life after being snapped up by buyers. The company says several potential buyers have expressed interest in the brands. Although Hostess' sales have been declining in recent years, the company still does about $2.5 billion in business each year. Twinkies along brought in $68 million so far this year.

 

Comments

Contango

IMO, this mediation is a head fake.

As structured, this co. is unsustainable as a going concern:

"Hostess's 372 collective-bargaining agreements required the company to maintain 80 different health and benefit plans, 40 pension plans and mandated a $31 million increase in wages and health care and other benefits for 2012."

http://online.wsj.com/article/SB...

-------------------

How to make your own Twinkies:

https://www.youtube.com/watch?fe...

starryeyes83

It was a heck of a PR stunt it got their products sold, I guess.

;]

luvblues2

Boxes of Twinkies were selling in the hundreds of dollar range online. I like 'em occasionally, but certainly not that much.

wiredmama222

Please don't take my twinkies away...I dreamed of ding dongs and ho ho's all night. lol

2cents's picture
2cents

(I dreamed of ding dongs and ho ho's all night)
Oh, these two M? LOL
http://farm6.staticflickr.com/53...

Contango

If Grupo Bimbo potentially buys some or all of Hostess Brands, will protectionists protest Twinkies?

wetsu

Keep blaming the working person, huh?

Another perspective...

http://www.forbes.com/sites/hela...

BEHAPPY

I'm with you "wetsu"
The working people are always to blame when we all know where the BIG money is going. Cut the management for a change~there's more salaried people now making big money than there ever was but it is always the little guy worker they blame.
Go figure~time to change that!

Contango

@ wetsu:

Not the workers themselves, but changing tastes and some "crazy" union contract rules certainly helped:

"Union work rules usually required cake and bread products to be delivered to a single retail location using two separate trucks.

Drivers weren't allowed to load their own vehicles, and the workers who loaded bread weren't allowed to load cake. On most delivery routes, another 'pull up' employee moved products from back rooms to shelves."

http://online.wsj.com/article/SB...

Labor costs represent 70-80% of the expense of any business and that's where the cuts usually begin.

wetsu

I won't disagree with that, 6079. Some of the provisions in the contracts are laughable at best. BTW, Hostess and the union have agreed to mediation.

Contango

@ wetsu:

I've worked in unions shops; I was taught by some of the old hands how to work less and earn more.

Yea, as I wrote: Mediation is a head fake. IMO, it's only a matter of time before liquidation.

luvblues2

THAT is the single most, biggest problem with unions. They break down the job into little tiny bits and if you do something outside of your job classification you will be fined and written up by the union and the company for not following protocols. I AM a witness. I wasn't allowed to sweep the floor in my area. NO BS!

wiredmama222

Kick out the owners and let the bakers buy the place. Let them run Hostess. What the heck, they can do a better job than the money grubbing owners any day of the week. Its been done before. If the owners want to be so darn hard headed, let them take an offer from the workers to just buy them out. I bet they could get a bank to back them.

Randy_Marsh

If the bakers union owned the business who would the workers strike against?

wiredmama222

Isn't that the idea???

Randy_Marsh

So when the new owners (The Union) decides to cut wages and benifits due to slow sales and the burden of pension plans the workers can go along with it willingly? Competition, bad economy, government pushing for healthier foods and less disposable income to buy luxury foods will cause this. Then what?

BW1's picture
BW1

"kick out the owners?" You seem to be missing the meaning of "owner" - they OWN it - it's THEIR property. Why don't we kick you out of your home? Your car?

Clearly, based on the work rules the WORKERS voted into place, they can't run it better.

It's the owners' prerogative not to make cakes if they don't want to, the judge's little Directive 10-289 notwithstanding.

Contango

@ wiredmama222:

No. 1) Who's supplying the capital for the buyout? What financial institution would provide funding for this bureaucratic nightmare?

"With the leadership of Craig Jung, the company emerged from bankruptcy as a private company on February 3, 2009.

The plan included a 50 percent equity stake by Ripplewood Holdings and lines/loans by General Electric Capital and GE Capital Markets, Silver Point Finance and Monarch Master Funding. Interstate's union workers made contract concessions in exchange for equity."

Ripplewood has sunk $130M into the co.!

I wouldn't pay $1.00 for a share of the stock right now.

IMO, the new union owners would eventually have to lay off excess workers anyway.

http://en.wikipedia.org/wiki/Hos...

mikel

it is always easier to spend someone else's money!

KURTje

"Only the little people pay taxes." Leona H. Always blame the workers.

Darwin's choice

"Twinkies" can survive a nuclear holocaust, but can't survive a second Obama term.........