Hostess Brands Shutters Ops, Blames Union Strike

by Judie Bizzozero, Senior Editor

IRVING, TexasHostess Brandsthe maker of such American snack and bakery staples as Twinkies, Ding Dongs and Wonder Breadtoday filed a motion in U.S. Bankruptcy Court to shutter its operations and liquid its assets as a result of a weeklong strike by members of the Bakery, Confectionery, Tobacco Workers and Grain Millers (BCTGM) International Union. Bakery operations have been suspended at all plants, and delivery of products will continue, and Hostess Brands retail stores will remain open for several days in order to sell already-baked products.

The Board of Directors authorized the wind down of Hostess Brands to preserve and maximize the value of the estate after one of the companys largest unions, BCTGM, initiated a nationwide strike. The closure of the iconic bakery and snack maker will result in the loss of approximately 18,500 jobs and the closing of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 outlet stores nationwide.

In addition to dozens of baking and distribution facilities around the country, Hostess Brands will sell its popular brands, including Hostess®, Drakes® and Dolly Madison®, which make iconic cake products such as Twinkies®, CupCakes, Ding Dongs®, Ho Hos®, Sno Balls® and Donettes®. Bread brands to be sold include Wonder®, Natures Pride ®, Merita®, Home Pride®, Butternut® and Beefsteak®, among others.

On Nov. 12, Hostess Brands permanently closed three plants as a result of the work stoppage. On Nov. 14, the company announced it would be forced to liquidate if sufficient employees did not return to work to restore normal operations by end of business on Nov. 15. When the deadline passed, the company determined that an insufficient number of employees had returned to work to enable the restoration of normal operations.

BCTGM in September rejected a last, best and final offer from Hostess Brands designed to lower costs so the company could attract new financing and emerge from Chapter 11. Hostess Brands then received court authority on Oct. 3 to unilaterally impose changes to the BCTGMs collective bargaining agreements.

The company released a statement that said it is unprofitable under its current cost structure, much of which is determined by union wages and pension costs. The offer to the BCTGM included wage, benefit and work rule concessions, but also gave Hostess Brands 12 other unions a 25% ownership stake in the company, representation on its Board of Directors and $100 million in reorganized Hostess Brands debt.

We deeply regret the necessity of todays decision, but we do not have the financial resources to weather an extended nationwide strike," said Hostess Brands CEO Gregory F. Rayburn. Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders."

BCTGM maintains that according to Hostess 1113 filing with the bankruptcy court earlier this year and its last/best/final and non-negotiable proposal to its BCTGM-represented workers, the company was planning to close at least nine bakeries as part of its reorganization plan, although the company refused to disclose which bakeries it intended to close. The closings were in addition to the three bakeries that were to be closed as a result of the company's planned sale of its Merita division. 

BCTGM also maintains the strike is not the reason for the eventual downfall of the snack company.

BCTGM International Union President Frank Hurt stated: The crisis facing Hostess Brands is the result of nearly a decade of financial and operational mismanagement that resulted in two bankruptcies, mountains of debt, declining sales and lost market share.  The Wall Street investors who took over the company after the last bankruptcy attempted to resolve the mess by attacking the company's most valuable assetits workers.

"They sought to force the workers, who had already taken significant wage and benefit cuts, to absorb even greater cuts including the loss of their pension contributions. I have said consistently throughout this process that the BCTGM is a highly democratic organization and that our Hostess members themselves would determine their future. By an overwhelming majority, 92%, these workers rejected the company's outrageous proposal, fully aware of the potential consequences. 

Hurts statement went on to lay blame on the companys lack of executive leadership. ... For the past eight years management of the company has been in the hands of Wall Street investors, 'restructuring experts,' third-tier managers from other non-baking food companies and currently a 'liquidation specialist.'  Six CEOs in eight years, none of whom with any bread and cake baking industry experience, was the prescription for failure.

Privately held Hostess filed for Chapter 11 protection in January 2012the second such filing in less than 10 years. The company said its debtor-in-possession lenders have agreed to allow the it to continue to have access to the $75 million financing facility put in place at the start of the bankruptcy cases to fund the sale and wind down process, subject to U.S. Bankruptcy Court approval.