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Hostess Brands To Shut Down

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.

(…)

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.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Herb says:

    Sucks for the employees, but at least they now have the opportunity to go work for a better managed firm.

    Their financial problems are older than my niece.

    Like or Dislike: Thumb up 0 Thumb down 0

  2. Anderson says:

    This could be the greatest thing for Anerican health since the discovery of antibiotics.

    Though of course, there are probably enough warehoused Twinkies to last a generation. Not like they’re going to go stale.

    Like or Dislike: Thumb up 5 Thumb down 2

  3. Brian says:

    It’s official, the zombie apocalypse is upon us.

    Like or Dislike: Thumb up 3 Thumb down 0

  4. mike says:

    A company that makes twinkies and other cakes can’t make money off of Americans? Who is running that place?

    I think Americans will find a way to fill the calorie void to ensure we maintain our leadership in the world of fat people.

    Like or Dislike: Thumb up 10 Thumb down 1

  5. Dave Schuler says:

    I think you’ve got it backwards, Doug. The brands will survive but the operations won’t. Competitors will buy the brands but won’t be interested in the operations—they already have their own and plenty of excess capacity.

    Like or Dislike: Thumb up 3 Thumb down 0

  6. Boyd says:

    The federal government can bail out the mismanaged auto makers and banks, but they won’t lift a finger to save Hostess?

    I don’t even want to live in a world without Twinkies. Just shoot me now.

    NB: For the perpetually humorless among the faithful OTB-ites, if you’re having problems understanding my speech, it’s because it’s hard for me to enunciate property with my tongue firmly embedded in my cheek.

    Like or Dislike: Thumb up 10 Thumb down 0

  7. sam says:

    Not to fear. I recall a line from Jay Leno’s old stand-up:

    Have you ever looked at the expiration date on a loaf of Wonder Bread? You should live so long.

    Like or Dislike: Thumb up 0 Thumb down 0

  8. sam says:

    “I don’t even want to live in a world without Twinkies.”

    There is no such world in the known universe.

    Like or Dislike: Thumb up 0 Thumb down 0

  9. Tastykake is better anyways.

    Like or Dislike: Thumb up 4 Thumb down 1

  10. mattb says:

    @Boyd:
    (1) Funny.
    (2) Good to see a post from you, it seems like its been a little while.

    Like or Dislike: Thumb up 1 Thumb down 0

  11. Peacewood says:

    @Boyd: I think I preferred the hat.

    Like or Dislike: Thumb up 0 Thumb down 0

  12. JKB says:

    @Herb: but at least they now have the opportunity to go work for a better managed firm.

    Ah but you see, first that firm is unlikely to be union and secondly, there are millions of Americans waiting for the opportunity to go to work, better managed or not, so these employees will have to get in line down at the unemployment office.

    While I don’t know about the states were these plant are but in NYC the unemployment office does little to help people get jobs but they are johnny on the spot for signing up for people for food stamps and other dependency programs.

    Like or Dislike: Thumb up 3 Thumb down 7

  13. Boyd says:

    @mattb: Thanks for the kind words.

    @Peacewood: I changed from the hat photo after a fatuous and idiotic accusation that I was trying to hide my identity. So you’re stuck with my ugly mug.

    Hmm…now that I think about it, there may be a “middle ground” photo I can use. I might change it later.

    Like or Dislike: Thumb up 1 Thumb down 0

  14. ernieyeball says:

    I wonder who the ding dongs are in this dispute to let the situation snow ball to this end?
    Only Howdy Doody knows!
    http://www.youtube.com/watch?v=hhD_13mbJQY

    Like or Dislike: Thumb up 2 Thumb down 0

  15. Geek, Esq. says:

    With pot legalization spreading, this seems like unfortunate timing.

    Like or Dislike: Thumb up 14 Thumb down 0

  16. Boyd says:

    @Geek, Esq.: Insightful point, Geek.

    Like or Dislike: Thumb up 2 Thumb down 0

  17. Moosebreath says:

    @Stormy Dragon:

    “Tastykake is better anyways.”

    True, even if their business model failed as well, and they needed to be bought out. Nothing beats a butterscotch krimpet.

    Like or Dislike: Thumb up 2 Thumb down 0

  18. Gustopher says:

    @Moosebreath: oh, the Krimpets are most excellent.

    Like or Dislike: Thumb up 0 Thumb down 0

  19. Gustopher says:

    The article fails to mention anything about the cause of the strike — Hostess was attempting to back out of previous labor agreements regarding health care and pensions.

    If you cannot afford to pay a living wage to get a job done, then that job obviously doesn’t need to get done. Good riddance to Hostess.

    Or, to be a bit more conciliatory, this is what private medical insurance is doing to the US. We have massive medical costs that we simply cannot afford, and our businesses are collapsing under the weight.

    Like or Dislike: Thumb up 4 Thumb down 1

  20. @Moosebreath:

    I just like to mention it because it’s one of the things that I strongly associate with making my part of Pennsylvania my part of Pennsylvania.

    Like not having had normal balogna until I went to college, and not knowing what it was, because where I greew up, balogna meant Lebanon balogna.

    Like or Dislike: Thumb up 0 Thumb down 0

  21. rudderpedals says:

    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.

    Do you think Hostess could try airline strategy? Perpetual chapter 11 is pretty much the default business model for the air carriers.

    I’m still not over Macho Grande Entenmann’s switch to phoney chocolate on their donuts.

    Like or Dislike: Thumb up 0 Thumb down 0

  22. bookdragon says:

    Strangely, what isn’t mentioned is that while workers were being asked to accept drastic cuts, the managers all got big raises and bonuses even as the company went into bankruptcy. Nor is it mentioned that investments in the company that had been promised as part of restructuring after the previous bankruptcy were never made. Or that the private equity group that took Hostess over appointed 6 CEOs over 8 years, none of whom had any experience in the baking industry.

    Blaming bankruptcy on the union is bit like blaming the Titanic on all the steerage passengers who got caught below decks when it sank.

    Like or Dislike: Thumb up 7 Thumb down 1

  23. Jenos Idanian Who Has No Pony Tail says:

    @Herb: Sucks for the employees, but at least they now have the opportunity to go work for a better managed firm.

    They ALWAYS had that opportunity, dumbass. They were employees, not slaves.

    Now all the other employees get to enjoy their “funemployment,” too.

    Thank you, unions. Because this was a much better option than taking a pay cut. Better that everyone get 0% than 68% of their pay, right?

    Like or Dislike: Thumb up 1 Thumb down 7

  24. wr says:

    @Jenos Idanian Who Has No Pony Tail: So you’re saying that workers are morally obligated to take a 30% pay cut in order to protect the jobs of their fellow employees?

    You believe that workers are obligated to keep on working for wages that can’t support their families simply because that’s what the owners choose to pay?

    If your boss — assuming you’ve actually ever had a job — told you he was slashing your pay by close to 40% simply because he felt like it and was continuing to take millions in salary and bonuses, but you were oblilgated to keep working for a wage you’d never agreed to, can we assume you’d just go along with it because it’s the right thing to do?

    Or are these other workers supposed to be treated like field slaves simply because they are union members, and therefore they are scum?

    Get a job, you pathetic little loser, and then you can come talk about people who are fighting to feed their families and maintain their dignities. Get a job, and then you can opine on how everyone but you has to bend over and take whatever the big boss chooses to give that day, because it’s just icky to stand up like a man.

    Get a job, you pathetic little loser, and maybe you’ll have just a little less time to rag on workers who have far more guts than you can ever dream of.

    Oh, and by the way — everything you predicted about the election was 100% wrong. Everything you’ve said about politics in this country has proved to be 100% wrong. You’ve slimed your way back in here pretending that no one noticed just how supremely ignorant you’ve proven yourself about, well, everything you’ve ever said.

    But we all know. You were wrong about everything. Everything.

    Like or Dislike: Thumb up 1 Thumb down 1

  25. Herb says:

    @Jenos Idanian Who Has No Pony Tail:

    “They ALWAYS had that opportunity, dumbass. They were employees, not slaves. “

    Careful who you’re calling dumbass, bud.

    Especially if this is an indication of your brain power:

    Thank you, unions. Because this was a much better option than taking a pay cut. Better that everyone get 0% than 68% of their pay, right?

    You act as if the company that had been in and out of bankruptcy since 04 could be saved by yet another pay cut on its workers.

    Bottom line is that forcing concessions from the workers was just delaying the inevitable. This company should have folded years ago.

    Like or Dislike: Thumb up 0 Thumb down 0

  26. anjin-san says:

    Are any Republicans talking about the huge raises Hostess’ senior executives were getting even as the company was preparing to go into bankruptcy?

    Like or Dislike: Thumb up 0 Thumb down 0

  27. Fyooz says:

    @Gustopher: this is what private medical insurance is doing?

    That does not follow. In one sense, very little of the medical insurance available from employers in the private sector is “private.” Heavily regulated, no crossing state lines, many aspects of policies are mandated by state governments. So I think it is disingenuine to argue that these results are the fault of private companies providing coverage.

    And it is not really insurance either, it is a group payment plan. So many private sector companies offer it because they are given corporate income tax bribes to give it. They don’t pay taxes on it and the recipients don’t either.

    The government already runs this system, private insurers are just holding the bag. PPACA is just an incremental move towards more government control. Large increments, but still incremental.

    Don’t blame the free market for some ill it hasn’t perpetrated.

    Now, let’s hear more about the inclinations, talents, motivations of the BoD, shall we? If you want to tar the free market, the BoD is a better focus for your attention.

    Like or Dislike: Thumb up 0 Thumb down 0