Hostess, union fail to reach deal

15,000 workers fired; judge renews liquidation scenario

Scott Hubbard of Chico, Calif., loads Hostess Zingers at the Hostess store in Redding, Calif., on Friday.
Scott Hubbard of Chico, Calif., loads Hostess Zingers at the Hostess store in Redding, Calif., on Friday.

— Hostess Brands Inc. must return to a liquidation scenario after mediation with its bakers’ union failed to avert a shutdown that will eliminate more than 18,000 jobs, the judge overseeing the Twinkie maker’s bankruptcy said Wednesday.

Chief Executive Officer Gregory Rayburn told U.S. Bankruptcy Judge Robert Drain at a hearing Wednesday that 15,000 Hostess workers were fired Wednesday to allow them to start collecting unemployment benefits. The company is seeking Drain’s permission to close so it can begin asset sales that a financial adviser estimated may yield about $1 billion.

There is “very intense” competition for Hostess brands, Joshua Scherer of Perella Weinberg Partners LP told Drain at the hearing. A sale would be a “once in a lifetime opportunity for our competitors to get iconic brands,” he said. The 82-yearold company makes Wonder bread, Hostess CupCakes, Ding Dongs, Ho Hos and Drake’s Devil Dogs.

Most of the wind-down would take place in the first three months, a Hostess lawyer said. The initial focus would be on “selling assets to continue as a going concern,” followed by an open auction, Heather Lennox of Jones Day told Drain.

Quick asset sales may preserve some jobs, Scherer said. A prospective buyer visited a Drake’s cake factory Tuesday and asked whether its acquir- er “could rehire employees who worked here,” he said.

Rayburn asked Drain to shield company officials from lawsuits over Wednesday’s planned firings. Hostess has said more than 3,000 employees will stay on temporarily to clean plants and mothball equipment.

Drain adjourned the hearing Monday and sent the parties off for a last-ditch effort to negotiate terms that might keep the floundering company afloat. Hostess said it was forced to opt for liquidation after the bakers’ union went on strike Nov. 9. The union, representing about 5,000 Hostess workers, walked out after Drain imposed contract concessions opposed by 92 percent of the union’s members.

“I’m giving the union as well as the debtors and their lenders a last chance to try and work those issues out in private,” Drain said Monday. He cited “serious questions as to the logic behind the decision” to strike.

Hostess, based in Irving, Texas, and the union agreed to Drain’s request to enter confidential mediation under his supervision. Company and union officials acted in good faith in Tuesday’s talks at the law offices of Jones Day in New York, Drain said Wednesday.

“A mediation today with the Bakery, Confectionary, Tobacco and Grain Millers Union was unsuccessful,” Hostess said Tuesday in a statement.

Corrina Christensen, a spokesman for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, didn’t return a call seeking comment on the failed mediation.

“Unfortunately, the lastminute mediation efforts by Judge Drain were not successful,” Ken Hall, general secretary-treasurer of the Teamsters union that represents Hostess drivers, said in a statement. “This is a tragic outcome.”

Hostess is asking the judge for approval to shut down 33 bakeries, 242 depots, 216 retail stores, and 311 hybrid depotstore facilities, according to court filings. There are 58 other leased or owned sites used for storage, warehousing of products or parking. The plants are in 22 states, stretching from Alaska to New Jersey. Three bakeries were closed by the company before the liquidation request.

Hostess sought court protection in January, its second time in bankruptcy, listing assets of $982 million and debt of $1.43 billion.

Business, Pages 35 on 11/22/2012

Upcoming Events