* Hostess agrees to mediation with union, creditors
* Judge wants to save over 18,000 jobs
* Company suspended operations at 33 plants last week
By Nick Brown and Martinne Geller
WHITE PLAINS, N.Y., Nov 19 Hostess Brands Inc
agreed in court on Monday to enter private mediation with its
lenders and leaders of a striking union to try to avert the
liquidation of the maker of Twinkies snack cakes and Wonder
Hostess, its lenders and the Bakery, Confectionery, Tobacco
Workers and Grain Millers International Union (BCTGM) agreed to
mediation at the urging of Bankruptcy Judge Robert Drain of the
Southern District of New York, who advised against a more
expensive, public hearing regarding the company's liquidation.
"My desire to do this is prompted primarily by the potential
loss of over 18,000 jobs as well as my belief that there is a
possibility to resolve this matter," Drain said.
The 82-year-old Hostess was seeking permission to liquidate
its business, claiming that its operations have been crippled by
a bakers strike and that winding down is the best way to
preserve its dwindling cash. Hostess suspended operations at all
of its 33 plants across the United States last week as it moved
to start selling assets.
Heather Lennox, a lawyer for Hostess, said it would be hard
for Hostess to recover from the damage it sustained due to the
strike even if an agreement was forthcoming. Yet following the
hearing, Hostess Chief Executive Officer Gregory Rayburn told
reporters that there was always a chance Hostess could be saved.
"I think we have to see what unfolds," Rayburn said. "My
impression is that the judge wants to understand the parties'
positions and some of their logic, but it doesn't change our
"I'm happy to have the help," he added, referring to Drain's
mediation following a breakdown of communication between Hostess
and the union. "Maybe the judge will help. But can I handicap
how it's going to go? No way."
A lawyer for Hostess' creditors' committee declined to
The court-sanctioned mediation could make both sides more
willing to give, said Nick Kalm, a communications consultant
specializing in labor relations.
"It makes it much more likely that the company will put
forward something that is less draconian... and the union will
take it. The union realizes they are out of options," said Kalm.
BEHIND CLOSED DOORS
The BCTGM called the strike on Nov. 9 after Hostess sought
and won court approval to impose wage and benefit cuts.
Unlike other unions representing workers at Hostess, the
BCTGM did not contest Hostess's action -- which allowed it to
reject a collective bargaining agreement and impose its offer.
Given the fact that the union did not fight Hostess's motion
in court, Judge Drain said it was "somewhat unusual to say the
least, and perhaps illogical" that the union would then strike
"Its an odd approach," Drain said. "Before thousands of
people are put out of work it would seem to me worthwhile for
both the union and the debtors to explore why that happened."
Drain also questioned whether the union had held discussions
with competitors or potential suitors about a shiftover of jobs,
saying the union's response to Monday's motion implied that it
sees "meaningful sales available out there beyond the piecemeal
sales that this motion contemplates."
A lawyer for the union did not immediately return a phone
call seeking comment on whether such discussions had taken
BUYERS MAY EMERGE
Analysts have said Hostess' brands, which also include
Nature's Pride, Dolly Madison and Drakes, are expected to draw
interest from rivals including Flowers Foods, Pepperidge
Farm owner Campbell Soup Co and Mexico's Grupo Bimbo
Brian Boyle, a food industry investment banker at D.A.
Davidson & Co, said it was hard to gauge the value of the
Hostess assets, given that there are a lot of plants that are
old and inefficient.
"The other wild card is whether you're going to see
different buyers emerge for different segments of the business.
So Flowers Foods, for instance, might want the cake segment and
Bimbo could want the bread piece. So it comes down to 'are the
parts greater than the whole?'," Boyle said. "In either case,
significant labor and benefits concessions will be required."
Private equity firm Metropolous & Co said on Friday it was
interested in pursuing the company, and on Monday, Fortune
reported that Sun Capital Partners was interested. Sun Capital
did not return a call seeking comment.
The company did have a potential white knight at one point,
according to Hostess. Last spring, an outside equity investor
had made a viable proposal that would help the company
reorganize, it said, but the Teamsters union refused to agree to
changes to the pension program and the outside investor walked
The company spent the summer and fall negotiating with all
of the 12 unions trying to find a common path to reorganization,
and did gain certain agreements with the Teamsters and many of
the other unions, though not the BCTGM. At the same time the
company started putting together a liquidation plan.
The case is In re Hostess Brands Inc, U.S. Bankruptcy Court,
Southern District of New York, No. 12-22052.