UPDATE 2-Interstate Bakeries fails to reach Teamsters deal

(Adds company spokeswoman's quote, background, details, byline; changes dateline from NEW YORK)

By Carey Gillam

KANSAS CITY, Mo., Oct 1 (Reuters) - Interstate Bakeries Corp IBCIQ.PK, the bankrupt maker of Wonder Bread and Twinkies treats, said on Monday it had failed to reach agreement with the Teamsters union on contract modifications, forcing the company closer to possible liquidation.

Interstate continues to hope that agreement with the union can be reached before a key bankruptcy hearing on Wednesday, company spokeswoman Sandi Sternberg said.

"We are hoping to do that," she said. "But there are some serious issues where we have disagreements."

The Kansas City-based food company, one of the largest wholesale bakers and distributors of fresh baked bread and sweet goods in the United States, said it reached a contract agreement with the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union on Friday.

The company had been asking the unions for concessions in health and welfare plans and a revamped delivery structure.

Achieving agreements with the two unions was "critical to the company's ability to survive," Interstate said in a Sept. 13 regulatory filing.

The company's court hearing Wednesday will deal with its request for a 30-day extension to give it extra time to figure out how to maximize the value of its bankruptcy estates, including the sale of its assets.

Interstate has more than 25,000 employees and operates 45 bakeries and about 630 distribution centers around the country.

The company's shares, which trade over the counter, rose 6 cents to 50 cents in early dealings.

In the regulatory filing, Interstate said it has closed bakeries, consolidated routes and terminated 22 percent of its work force in a bid to reorganize. Still, the company said it faces "many obstacles," including rising ingredient, fuel and labor costs, decentralized operations, and increased competition.

The company's financing facility while in bankruptcy expires on Feb. 9, 2008, and is not likely to be extended unless its emergence from bankruptcy appears imminent, Interstate said in the filing with the U.S. Securities and Exchange Commission.

"Time is of the essence," it said. (Reporting by Carey Gillam)