Mediation Talks Collapse, Hostess Headed Towards Liquidation

Andrew Klips  |

With a last-ditch mediation attempt ordered by Bankruptcy Court Judge Robert Drain failing to produce any results on Tuesday, it looks like embattled icon Hostess Brands Inc. will be going back into court Wednesday morning for liquidation proceedings.  Judge Drain had ordered a sit-down between Hostess and the Baker, Confectionery, Tobacco and Grain Millers Union, which represents 5,600 Hostess employees, to try and resolve their differences to avoid winding-down the 82-year old company.

In September, Hostess made a final offer to the union reflecting cost cutting measures to allow the company to stay in business.  The union refused the deal.  The vast majority of members of the Teamsters’ union at Hostess, which consists of about 6,700 employees, agreed to wage and benefit concessions.

Judge Drain himself oversaw the mediation yesterday.

Hostess, the maker of iconic snacks and brands such as Twinkies, Ding Dongs and Wonder Bread, closed operations last Friday and disclosed that it plans to sell its assets and lay-off nearly all of its 18,500 workers.   Hostess also owns Drake’s, a company with scrumptious offerings such as Yodels and Devil Dogs.  The mediation was a final effort to bring together the two sides so that operations could attempt to resume, but it looks like those hopes are now down the, well, Drain.  Hostess was clearly in financial chains as it was, but a union strike that started on November 9 had executives leery about overcoming those additional financial damages to ever fire-up the ovens again.

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This is Hostess’ second bankruptcy, the first being a Chapter 11 restructuring almost a decade ago.  The Irving, Texas-based company said last week that a conventional restructuring this time would not work, citing expenses attached to its unionized workforce that underpinned the company’s debt problems.

To start and complete the sale of its assets, it is expected that Hostess will ask the courts to keep $1.75 million in bonuses to pay 19 executives to stay on board to the end of the company.  The bakery union has gone on record opposing any such bonuses.

Now, there is still a strong possibility that the world won’t lose Hostess’ beloved brands.  They may not be made in any of the company’s 33 bakeries or go through one of their 565 distribution centers in the future, but reports have it that several companies are interested in buying the brands and recipes of Hostess.  Private equity firm Sun Capital Partners told Fortune on Monday that it is interested and would utilize existing Hostess facilities and employees.

“We've found that investing new capital into companies like this can be very positive for brand, people and profitability,” Sun Capital co-CEO Marc Leder told Fortune.  Leder said that they would look to invest in newer manufacturing assets and believes that his firm could make Hostess immediately profitable from an EBITDA standpoint.

Other potential buyers could choose to manufacture and distribute through their own existing chains; putting current Hostess employees in the unemployment line.

Hostess is slated to be back in court at 11 AM ET Wednesday in White Plains, New York where its motion to liquidated will be decided upon.

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