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Twinkie Maker Hostess To Close

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Twinkie Maker Hostess to Close

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 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.

The work stoppage, launched Nov. 9 by the Bakery, Confectionery, Tobacco Workers and Grain Millers 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 professional who took the top job at the company after its former leader abruptly resigned earlier this year, 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 Friday. He said the company will "promptly" dismiss most of its 18,500 employees and focus on "selling its assets to the highest bidders."

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 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, 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 brought all of Hostess's unions on board with fresh collective-bargaining agreements. Some, like the Teamsters, gave their support willingly, though begrudgingly, while others, like the bakers union, were forced by a judge to accept the new deal.

The bakers union continued to attack the wage and benefit cuts and pension restrictions that form the heart of the new contract, even as Hostess shifted its focus to its reorganization plan, which was slated for an initial round of approval later this month.

"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.

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.

Karst41 likes this

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This sucks, but I cannot just blame the union. I do not know the details of the contract, which the CEO/company forced down their employees throats. I still would have preferred that they work together. maybe the Union could have actually bought some of the company to help it get back on its feet.

It sucks to lose those brands, but I stopped eating those things a while ago.

Karst41 likes this

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I might throw some blame to the Unions, especially after this little nugget of info.

The new contract cut salaries across the company by 8% in the first year of the five-year agreement. Salaries were then scheduled to bump up 3% in the next three years and 1% in the final year.

Hostess also reduced its pension obligations and its contribution to the employees' health care plan. In exchange, the company offered concessions, including a 25% equity stake for workers and the inclusion of two union representatives on an eight-member board of directors

I think Hostess was actually trying to give them a somewhat decent deal while their hands were tied.

I am wondering if this " we plan to shut down everything" is a ploy to get the workers back to the table to get something worked out. Seems a little crazy that you would shut down everything, because of a one week strike. That has to be the most effective strike in history.

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Hostess was going under anyway. They filed for bankruptcy numerous times over the past two decades and they could not keep up with their competition in terms of providing good wages and benefits to their employees. The employees not wanting to work for poor wages and next to no benefits was just the final nail in the coffin.

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Hostess was going under anyway. They filed for bankruptcy numerous times over the past two decades and they could not keep up with their competition in terms of providing good wages and benefits to their employees. The employees not wanting to work for poor wages and next to no benefits was just the final nail in the coffin.

I'm sure they're thrilled about the better wages and benefits they have now. BTW, it was a bankruptcy judge that was forcing this issue, as he did with the Teamsters, who agreed to necessary cuts in order to retain viability. And you have a strange definition of "poor wages and next to no benefits", when the court knew given business realities these changes were necessary for the future of the company.

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Richard Trumka says Hostess is wrecking America. Uh, hostess is gone dummy. Your strike was the final blow in wrecking Hostess. I will never forget talking to a union guy who was unemployed. I was young an naive. I told him that there were lots of jobs. He said that he wouldnt work for less than $18 an hour. This was a while back. I asked him how long he had been out of work. Five years. I have told interviewers that I just cant work for that little money, but after five years, I'd be showing up on your front step asking if you needed your lawn cut.

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They are all gone. wonder bread. GONE. Hostess GONE Drakes GONE GONE GONE GONE.

I hope that the union workers can reverse the damage they have done. I still do not believe a 7 day strike can take down a company with 18,000 workers.

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I'm sure they're thrilled about the better wages and benefits they have now. BTW, it was a bankruptcy judge that was forcing this issue, as he did with the Teamsters, who agreed to necessary cuts in order to retain viability. And you have a strange definition of "poor wages and next to no benefits", when the court knew given business realities these changes were necessary for the future of the company.

If the only way your company can stay viable is to slash employee pay and benefits to the point that they did then my guess is that the company should have gone under well before this.

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Fat people rioting incoming.

and by that I mean fat people riding around Wal-Mart in rascals demanding MOAR TWINKERS!!!

Way to be judgmental lol.

Karst41 likes this

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If Hostess can't provide a "Living Wage" for their employees than they shouldn't have been in business in the first place. Those 18,500 people are better off on unemployment and food stamps than to be treated so poorly by this 1 percenter expecting them to take a %5 pay cut.

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If Hostess can't provide a "Living Wage" for their employees than they shouldn't have been in business in the first place. Those 18,500 people are better off on unemployment and food stamps than to be treated so poorly by this 1 percenter expecting them to take a %5 pay cut.

I wonder what the 1%ers pay cut was...

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They are all gone. wonder bread. GONE. Hostess GONE Drakes GONE GONE GONE GONE.

I hope that the union workers can reverse the damage they have done. I still do not believe a 7 day strike can take down a company with 18,000 workers.

I believe the brands, especially Wonder Bread, may live on in Canada. Should also be scooped up by a competitor in the U.S.

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If the only way your company can stay viable is to slash employee pay and benefits to the point that they did then my guess is that the company should have gone under well before this.

8% wage cut recovered in 4 years and a suspension of pension contributions for 3 years during one of the worse recessions in our history. Oh the horror and corporate greed!!!

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I wonder what the 1%ers pay cut was...

According to the article, creditors and investors are going to split the assets. The Public will be on the hook for the 75million loan to get it done. The %1er will probably just start another business somewhere else. (Maybe Texas?) Forcing these people to pay their "fair share" is just forcing them to take their share elsewhere.

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it's business.... if you can't cut it, then you go under. the void that was created by this company going under will be filled by a company ran better.

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