Hostess Brands, the bakery company famous for snack foods such as Twinkies and Ding-Dongs, is shutting its doors after it was unable to resolve its disputes with labor unions sufficiently to create a workable Chapter 11 reorganization plan:
Hostess Brands Inc, the maker of Twinkies and Wonder Bread, said it will ask a bankruptcy judge for permission to liquidate after failing to obtain wage and benefit cuts from thousands of its bakery workers.
The company said a strike by members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union that started last week was too much to overcome.
The company said it would layoff 18,500 workers and focus on selling its assets.
From the company’s press release:
IRVING, Texas, Nov. 16, 2012 /PRNewswire/ — Hostess Brands Inc. today announced that it is winding down operations and has filed a motion with the U.S. Bankruptcy Court seeking permission to close its business and sell its assets, including its iconic brands and facilities. Bakery operations have been suspended at all plants. 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 Company’s largest unions, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM), initiated a nationwide strike that crippled the Company’s ability to produce and deliver products at multiple facilities.
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 5 p.m., EST p.m., Nov. 15. The Company determined on the night of Nov. 15 that an insufficient number of employees had returned to work to enable the restoration of normal operations.
The BCTGM in September rejected a last, best and final offer from Hostess Brands designed to lower costs so that 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 BCTGM’s collective bargaining agreements.
Hostess Brands 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 unions a 25 percent ownership stake in the company, representation on its Board of Directors and $100 million in reorganized Hostess Brands’ debt.
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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 Ho’s®, Sno Balls® and Donettes®. Bread brands to be sold include Wonder®, Nature’s Pride ®, Merita®, Home Pride®, Butternut®, and Beefsteak®, among others.
The wind down means the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores throughout the United States.
Hostess has had financial difficulties for years now, much of it related to its labor costs and its inability to compete effectively in a food and snack market that has changed significantly over the decades. The company, originally known as Interstate Bakeries Corporation, was founded in 1930 first filed for Chapter 11 Bankruptcy protection in 2004 and spent five years under bankruptcy protection before emerging in 2009 under a new name, Hostess Brands, Inc. Within two years, though, the company was back in financial trouble and once again filed for bankruptcy protection at the beginning of this year. It’s difficult for a company to successfully emerge from Chapter 11 successfully to begin with, it becomes nearly impossible when that company is forced to re-enter Chapter 11 only a few years later. That’s a sign of an unsustainable business model and/or cost structure. So on some level, it’s not at all surprising to see this happen.
The list of the company’s brands is rather extensive, and it holds on to an extensive list of bakeries, distribution centers, and retail outlets. Given that, one would assume that someone out there will be interested in picking up at least part of the company, although it’s unclear how many, if any, of the brands will survive liquidation.
