* Company filed liquidation request early Friday
* Says suspended operations at all 33 bakery plants
* Expects to take a year to wind down
* Says it has received a number of proposals to buy assets
* Liquidation hearing set for Monday
By Carey Gillam and Tanya Agrawal
Nov 16 Hostess Brands Inc, the bankrupt maker of
Twinkies snack cakes and Wonder Bread, is seeking a U.S. court's
permission to go out of business after failing to get wage and
benefit cuts from thousands of its striking bakery workers.
The 82-year-old Hostess, which has about $2.5 billion in
sales and is one of the largest wholesale bakers and
distributors of breads and snack cakes in the United States,
filed the request with the U.S. Bankruptcy Court in New York
early Friday morning. A hearing on the matter is set for Monday.
The Irving, Texas-based company said the liquidation would
mean that most of its 18,500 employees would lose their jobs.
Hostess immediately suspended operations at all of its 33 plants
across the United States as it moves to start selling assets.
"We'll be selling the brands and as much of the
infrastructure as we can," said company spokesman Lance Ignon.
"There is value in the brands. But some bakeries will never open
again as bakeries."
Ignon said the company made final deliveries on Friday of
products made on Thursday night. Hostess's top-selling products
are its chocolate cupcakes, Twinkies cakes and its powdered
sugar and frosted "Donettes."
Hostess products, particularly the golden, cream-filled
Twinkies cakes, are deeply ingrained in American pop culture and
have long been packed in school children's lunch boxes.
Entrepreneurs on auction site eBay Inc were asking as
much as $100 for a box of 10 Twinkies on Friday morning.
Raj Patel, owner of Sarah's Market in Cambridge,
Massachusetts, said he was sorry to see the company go out of
"It's been around for ages," said Patel, 40. "A lot of
people are familiar with the brand and it's going to be tough
for some people to do without."
NOT INTERESTED IN BREAD
Hostess blamed heavy debt and burdensome wage and pension
obligations for its financial woes. It said a strike by members
of the Bakery, Confectionery, Tobacco Workers and Grain Millers
International Union (BCTGM), which began Nov. 9, was part of a
long series of battles between labor and management that
contributed to the company's inability to restructure its
finances and produce and deliver products at several facilities.
But union officials and line workers said union workers had
already agreed to a series of concessions over the years and the
company had failed to invest in brand marketing and
modernization of plants and trucks and had focused instead on
enriching owners such as private equity firm Ripplewood Holdings
and hedge funds Silver Point Capital and Monarch Alternative
Officials at the three firms declined to comment.
"Our members decided... they were not going to agree to
another round of outrageous wage and benefit cuts and give up
their pension only to see yet another management team fail and
Wall Street vulture capitalists and 'restructuring specialists'
walk away with untold millions of dollars," said BCTGM
International Union President Frank Hurt.
Picketing workers echoed the sentiment.
"The people who are running this company are not interested
in making bread," said Roger Harrison, 56, who bags buns at the
Hostess plant in Lenexa, Kansas, and has been with the company
for 35 years.
"They are not in the baking industry; they are just
interested in the money," Harrison said.
The company had started implementing an 8 percent pay cut, a
20 percent increase in healthcare costs, and changes to pension
and workday provisions when workers went on strike on Nov. 9.
Hostess had given employees a deadline to return to work on
Thursday, but the union held firm, saying it had already given
far more in concessions than workers could bear and that it
would not bend further.
"The union has been the death of this company," said a human
resources manager who recently left Hostess.
LONG LABOR BATTLES
Hostess's battle with its workforce has brewed for years.
Formerly known as Interstate Bakeries Corp (IBC), the company
for decades was based in Kansas City, Missouri. It filed for
bankruptcy in September 2004 and emerged in 2009 with a host of
employee concessions from various unions.
A source with knowledge of the situation who spoke on
condition of anonymity said the company was well positioned when
it emerged from bankruptcy in 2009, but the recession, a spike
in commodity prices and consolidation of major competitors
reshaped the landscape and forced more restructuring.
"We tried to get the senior creditors and the unions
together and it dragged on and on and on and the company got
weak," said the source. "I'm still praying, literally, that
something is worked out and they don't liquidate the business."
When Hostess filed for bankruptcy protection in January of
this year the company said it must withdraw from multi-employer
pension plans, address legacy health and welfare costs and
secure new capital to modernize its operations.
The company has spent the last several months battling for
wage cuts and other concessions from 12 unions representing
Hostess workers. At one point earlier this year, Hostess had a
potential outside equity investor lined up, but failure to gain
pension relief from the International Brotherhood of Teamsters
union killed that option, the company said in its court filing
The company submitted offers to both the Teamsters and the
bakery union in August, in what the company said was a final
effort to save the company. The Teamsters accepted the proposal
but the bakery union balked.
With court approval, Hostess implemented the contract
changes in October. The bakery workers then launched strikes
that disrupted operations at 24 bakeries. Hostess said the
strikes were the final blow to the already "daunting obstacles"
The company's court filing said that it hopes it can arrange
the sale of groups of assets to be operated as going concerns.
Hostess has 565 distribution centers and 570 bakery outlet
stores, as well as the 33 bakeries. Besides Twinkies and Wonder
Bread, its brands include Nature's Pride, Dolly Madison,
Drake's, Butternut, Home Pride and Merita.
The company said in Friday's court filing that it would
probably take about a year to wind down. It will need about
3,200 employees to start that process, but only about 200 after
the first few months.
Hostess had been gauging acquisition interest for certain
brands for months and in late September received "a number of
potentially viable proposals" to purchase certain assets.
Pabst Brewing Co owner, C. Dean Metropoulos & Co, is
considering making an offer to buy Hostess Brands Inc, Daren
Metropoulos, a principal at the private-equity firm, told
Bloomberg News. Metropoulos did not return a request for
SunTrust Robinson Humphrey analyst William Chappell Jr. said
Flowers Foods Inc could be among the potential buyers
for some Hostess assets. And he said the company's liquidation
was a "positive step" for the sector because it will reduce the
number of major vendors.
In addition to Flowers, Bimbo Bakeries USA, a division of
Mexico-based Grupo Bimbo, and Pepperidge Farm, a
division of Campbell Soup Co, were considered
prospective buyers, analysts said.
It is not a given that all of the better-known brands will
survive, analysts said. "I'd be surprised if the Twinkies brand
isn't gone for good," said Timothy Ramey, analyst at D.A.
Davidson & Co.
The company has canceled all orders with its suppliers and
said any product in transit would be returned to the shipper.
The company's last operating report, filed with the
bankruptcy court in late October, listed a net loss of $15.1
million for the four weeks that ended in late September, mostly
due to restructuring charges and other expenses.
The case is In re: Hostess Brands Inc, U.S. Bankruptcy
Court, Southern District of New York, No. 12-22052.