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Hostess Seen Attracting Bids for Assets From Flowers

By Dawn McCarty, Phil Milford and Duane D. Stanford
November 16, 2012 7:21 PM EST 380 Comments
The wind-down will close the remaining 33 bakeries and 565 distribution centers, Hostess said.
Photographer: Ken James/Bloomberg
The wind-down will close the remaining 33 bakeries and 565 distribution centers, Hostess said.

Hostess Brands Inc., the bankrupt maker of Wonder bread and Twinkies, said it will fire more than 18,000 workers and liquidate after a nationwide strike by bakery workers crippled operations.

“Companies in bankruptcy don’t have any margin for error,” Chief Executive Officer Gregory F. Rayburn said today in an interview with Betty Liu on “In the Loop” on Bloomberg Television. “We just didn’t have enough workers crossing the picket line.”

The 82-year-old maker of Hostess CupCakes, Ding Dongs and Ho Hos was undone by the strike after changes in American diets led to years of declining sales while ingredient costs and labor expenses climbed. The decision to liquidate capped a weeklong standoff between the company, once the largest U.S. wholesale baker, and a union that called its proposed labor contract “horrendous.”

Rayburn said Hostess will dismiss most of its 18,500 employees and focus on selling assets. Shipments of bread, snack cakes and other products will continue until supplies run out, he said. While Hostess has fielded interest in pieces of the business, its labor contracts and pension obligations have deterred any bids for the whole company, Rayburn said.

Pabst Brewing Co. owner C. Dean Metropoulos & Co. is considering an offer to buy Hostess Brands Inc., which said today it plans to liquidate its business.

‘Iconic Brands’

“Our family would love to purchase these iconic brands,” Daren Metropoulos, a principal at the private-equity firm, said today in an e-mail. “We have analyzed this opportunity very carefully for a few years now. Shedding the complications of the unions and old plants makes it even more attractive.”

“Hopefully, someone will buy the brands, and some of the brands can live on, but that’s a pretty small consolation for people who are out of work,” Rayburn said. The company’s brand names include Dolly Madison, Drake’s, Merita and Butternut.

Friday afternoon was quiet at the Hostess plant in Wayne, New Jersey. Delivery trucks and vans with the Hostess brand logos sat idly in the parking lot. Some workers went into the building and came out a few minutes later carrying bags filled with their belongings. Security guards stood outside the entrance.

A group of deer gathered in the grass next to the parking lot. The plant doors had signs posted, saying, “Hostess Brands Has Closed All Locations.”

‘Whose Fault’

After finding out about the closing on the news, Subhas Patel, 58, called the security guard at the Wayne plant to make sure he could pick up his stuff. Patel had worked on the production line for 13 years.

“A lot of people say it’s the management. I can’t say whose fault it is,” said Misty Williams, 40, who worked at the company for 14 years. “I wish they were able to come to an agreement,” Williams, who just bought a house in Pennsylvania, said. “They were just too stubborn, I guess; the union and the management.”

Rodica Salazar, 62, who worked there 15 years, blames the management. “They don’t think about our lives, how you’re going to live, how you’re going to pay. I feel sorry for people but not for them,” Salazar said.

‘Death Spiral’

Twinkies and other Hostess brands will probably disappear from the marketplace, said Tim Ramey, a Lake Oswego, Oregon- based analyst for D.A. Davidson & Co. Any buyer would need a distribution system, he said.

“Without your own distribution, it’s pretty problematic,” Ramey said today by telephone. “Twinkies has been on a slow death spiral for a long time. Somebody might decide they want something to do with it, but it’s not likely.”

Flowers Foods Inc. (FLO), the Thomasville, Georgia-based baker of Nature’s Own bread and Tastykake snacks, may be interested in buying some Hostess assets, William Chappell, an analyst for SunTrust Robinson Humphrey, wrote today in a note. Flowers shares jumped 10 percent in New York trading.

“This is an unfortunate situation and we are very sad for all those impacted,” Keith Hancock, a spokesman for Flowers Foods, said in an e-mailed statement. “We are staying focused on making sure our consumers and customers have the baked foods they need -- and on serving the market.”

‘Operational Mismanagement’

The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union went on strike Nov. 9 after a bankruptcy judge in White Plains, New York, imposed contract concessions opposed by 92 percent of the union’s members. The union represents about 5,000 Hostess workers.

“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 union said yesterday in a statement. Hostess “attempted to resolve the mess by attacking the company’s most valuable asset -- its workers.”

In the past 15 months, Hostess has unilaterally ended contractually obligated payments to the workers’ pension plan, and demanded cuts of as much as 32 percent in wages and benefits, the union said in the statement.

“Hostess’s announcement that it is liquidating the company is a deep disappointment for all of our Hostess members,” said bakers’ international union President Frank Hurt in a statement. He said that if members hadn’t accepted concessions earlier, “this company would have gone out of business long ago. Our members decided they were not going to take any more abuse.”

Sally Greenberg, executive director of the Washington-based National Consumers League, accused the company’s executives in a statement of “scapegoating” the union, “rather than take responsibility themselves.”

Workers Retained

Hostess, based in Irving, Texas, today asked a bankruptcy judge to hold a Nov. 19 hearing to approve the company’s request to close its 33 remaining bakeries and 565 distribution centers. Some workers will be retained to clean plants and mothball equipment, Hostess said.

Officials of the International Brotherhood of Teamsters, representing about 6,700 Hostess employees, were “incredibly disappointed” and “angry” about the shutdown, Rayburn said. The Teamsters union yesterday urged the bakers’ union to let members decide by secret ballot whether to continue the walkout.

“The company has clearly been mismanaged for some time,” the Teamsters said today in a statement. “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.”

‘Protect Jobs’

Drivers represented by the Teamsters earlier ratified a new contract with 8 percent in wage concessions and 17 percent in benefit reductions. Teamsters members “understood what was at stake and voted to protect all jobs at Hostess,” the union said in today’s statement.

Rayburn, who previously helped to guide companies including Syntax-Brillian Corp., Indianapolis Downs LLC and Sunterra Corp. through bankruptcy, said yesterday that Hostess lacked the financial strength and manpower to stay open during a strike.

“When you get to a certain point, customers are going to say, ‘Hey, you know, I’ve been as supportive as I can be but I can’t be out of stock,’” Rayburn said in today’s Bloomberg Television interview.

Hostess closed three of its 36 plants permanently Nov. 12, blaming the strike. The company said it determined last night that not enough employees had returned to work to restore normal operations.

Crippled Production

Bakers’ union members “crippled the company’s ability to produce and deliver products at multiple facilities,” and “bakery operations have been suspended at all plants,” the company said in a statement.

Hostess filed under Chapter 11 for a second time in January, listing assets of $982 million and liabilities totaling $1.43 billion. Rayburn was hired as chief restructuring officer in February and named CEO in March.

The baker ended an earlier trip through bankruptcy court in February 2009 when buyout firm Ripplewood Holdings LLC and lenders took control of Interstate Bakeries Corp., which was renamed Hostess Brands. The Teamsters and the bakery workers’ union both made voluntary concessions in the first Chapter 11 reorganization.

The new case is In re Hostess Brands Inc., 12-22052, U.S. Bankruptcy Court, Southern District of New York (White Plains). The prior bankruptcy was In re Interstate Bakeries Corp., 04-45814, U.S. Bankruptcy Court, Western District of Missouri (Kansas City).

To contact the reporters on this story: Dawn McCarty in Wilmington, Delaware, at dmccarty@bloomberg.net; Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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