No More Twinkies: Hostess Brands Going Out Of Business

via Rachel Feintzeig, The Wall Street Journal

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 collapse and probable liquidation of Twinkie-maker Hostess Brands is a sobering reality check for unions and workers looking to shift the post-recession balance of power with private employers.

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.

In a letter posted on a new site set up to communicate with employees and suppliers through the liquidation process, Hostess’s CEO pinned the blame on its striking union.

The work stoppage, launched Nov. 9 by the Bakery, Confectionery, Tobacco Workers and Grain Millers International 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 expert who took the top job at the company in March after its former leader abruptly resigned, 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 on Friday. The company will “promptly” dismiss most of its 18,500 employees and focus on “selling its assets to the highest bidders,” he said. Hostess has said it couldn’t survive without the reductions and pension restrictions it sought from employees.

The new five-year contract a bankruptcy judge allowed Hostess to impose would have cut wages and commissions by 8% in the first year, and cut pension contributions and health-care benefits—givebacks Mr. Rayburn described as “deep.” The deal would cut costs by $200 million annually, Mr. Rayburn said, including $40 million a year in wage concessions and $75 million in pension-cost savings.

A representative for the bakers union couldn’t be reached to comment Friday. Bakers union leaders rejected Hostess’s latest contract as too laden with cuts and union president, Frank Hurt, called it “untenable.”

Ken Hall, the treasurer and general secretary for Hostess’s largest union, the International Brotherhood of Teamsters, said the timing of the closure “could not be worse as we enter the holiday season.”

“Unfortunately, the company’s operating and financial problems were so severe that it required steep concessions from a variety of stakeholders but not all stakeholders were willing to be constructive,” Mr. Hall said in a statement. The union said it would look for asset buyers willing to hire some of its 6,700 members at Hostess.

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 is also seeking permission to pay a group of 19 managers bonuses ranging from 25% to 75% of their annual base compensation. Those payments would total up to $1.75 million, the company said. In addition, it wants to pay 3,200 employees bonuses equal to 25% of what they will earn from Friday until their wind-down-related duties are completed. Those payments would total $4.36 million.

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 LLC, is unlikely to recover anything in the liquidation.

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