Bankruptcy Judge Approves Hostess Liquidation Plan

Not surprisingly, the plan to liquidate Hostess Brands has been approved:

A federal bankruptcy judge approved Hostess Brands’ plans to wind itself down, officially putting the Twinkies brand on the auction block.

In granting Hostess’ motion, Judge Robert D. Drain of the Southern District of New York cited the need for a quick and orderly shuttering of the company to avoid letting its assets molder. The alternative, a less-structured Chapter 7 liquidation, would be far worse.

“This estate will suffer substantial diminuition if this wind-down plan is not quickly implemented,” he said. “It appears to me that the debtors have taken the right course.”

During a hearing that stretched for more than four hours, company executives and advisers espoused a simple message: Expedited sales of the failed baked goods maker’s brands will raise the maximum amount of money possible. And letting Hostess begin shutting its doors for good sooner would be kinder to employees.

Advisers sounded confident that the liquidation process, which is expected to take about a year, could yield big recoveries for creditors.

“Since we filed motion, we have received a flood of inquiries and think there can be a healthy competition,” Heather Lennox, a lawyer for the company, said at Wednesday’s hearing.

Hostess’ chief executive, Gregory Rayburn, testified in court on Wednesday that he needed to lay off 15,000 of the company’s 18,500 employees that afternoon, so that they could begin applying for unemployment benefits. Such speed, he said, was necessary for maximizing the value of what remained of the 82-year-old company.

“From this point forward, I need two things to happen, he said. “I need to maximize the value of the estate, and I need to do the best thing for the employees.”

He also asked the court to quickly approve Hostess’ plans to liquidate, given that the value of its brands and assets had begun deteriorating since factory production lines shut down last Friday.

“The longer you’re off the shelf, the less value you’re going to get,” Mr. Rayburn said.

An investment banker for Hostess contended that, at this point, the company could fetch significant sums for its host of sugary treats. Joshua Scherer of Perella Weinberg Partners testified in his testimony that over the course of the 10-month-old Chapter 11 case, he had received six takeover bids — though none was acceptable.

Since Hostess announced its intentions to liquidate, it has received expressions of interest from a wide range of potential buyers. Without naming names, Mr. Scherer said that they ranged from regional bakeries to national competitors to retail customers along the lines of Wal-Mart Stores and Kroger.

The banker added that his firm plans to reach out to approximately 145 financial firms, including private equity shops and liquidators, to gauge their interest. Investment concerns like Sun Capital Partners and C. Dean Metropoulos & Company, the owner of Pabst Blue Ribbon beer, have already said that they are interested in buying some or all of Hostess’ remains.

(Sun Capital has said that it would like to buy all of Hostess, not only preserving the company but also improving its toxic relationship with employee unions.)

Mr. Scherer said that he expects asset sales to reap “significant values,” perhaps more than $1 billion.

If this liquidation plan works out the right way, there’s the potential, but not the guarantee, that a good part of Hostess itself could be saved, and that many of the 15,000 people being laid off today could end up getting jobs again. However, I doubt anyone is going to be willing to take on the burden of the pension and union contracts that Hostess had spent most of the year before it filed for bankruptcy protection trying to negotiation changes to. We usually don’t get to see a rapid wind-down in action, so this could be interesting to watch.

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Doug Mataconis
About Doug Mataconis
Doug Mataconis held 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 contributed a staggering 16,483 posts before his retirement in January 2020. He passed far too young in July 2021.


  1. Ric Andersen says:

    Many of the 15,000 people being laid off today will not end up getting jobs again. Whoever purchases the Hostess brands will be companies already fully staffed. Hostess itself said last week that the desserts market is saturated, and most workers could not be hired by a company that would takeover.

  2. Geek, Esq. says:

    But the executives got their bonuses. After all, some things are sacred.

  3. @Geek, Esq.:

    Those executives are the ones charged with the duty of selling the company assets at highest value now.

    Also, whatever bonuses there were — and I’ve heard conflicting reports about that — would have been approved by the Bankruptcy Court.

  4. Wr says:

    @Doug Mataconis: Yes, the fact that the system is rigged to favor vulture capitalists over workers is proof this is a square deal.

  5. Tony W says:

    @Doug Mataconis: Doug, my understanding is that oversight only applies to current years’ bonuses. From what I can tell these executives have been pillaging the company for the better part of a decade.

  6. Jenos Idanian #13 says:

    You wanna talk pillaging? Let’s look at the unions.

    Apparently, it was against the union rules for the same delivery truck to deliver both Hostess and Wonder products, and for drivers to unload their trucks. So Hostess had to have two trucks, two drivers, and two unloaders to do the job that one guy could have done.

    “But management had to agree with it!” Under threat of strike.

    And besides, as Doug noted, those raises and bonuses were approved by the bankruptcy court.

  7. Eric the OTB Lurker says:

    @Jenos Idanian #13:

    Apparently, it was against the union rules for the same delivery truck to deliver both Hostess and Wonder products, and for drivers to unload their trucks. So Hostess had to have two trucks, two drivers, and two unloaders to do the job that one guy could have done.

    A link would be nice to support your claim that unions forced Hostess two have two trucks on hand. While you’re doing that, let me provide one.

    Hostess has been sold at least three times since the 1980s, racking up debt and shedding profitable assets along the way with each successive merger. The company filed for bankruptcy in 2004, and again in 2011. Little thought was given to the line of products. …

    Even if we disregard the pay raises, this shows a company clearly in decline and on its way out. So it seems awfully convenient for you to blame the unions for the downfall of the company, while completely excusing the management.

  8. Herb says:

    @Jenos Idanian #13:

    “You wanna talk pillaging? Let’s look at the unions.”

    You are such a good little soldier, dude. All you need to hear is “unions” and you know who to blame.

    I certainly don’t expect you to take this into consideration or anything, since from what I’ve seen you’re more of a right-wing Turing machine than a human mind capable of processing complex thoughts, but you need to hear it.

    An employee who worked for the company for 14 years says:

    “In 2005, before concessions I made $48,000, last year I made $34,000…. I would make $25,000 in five years if I took their offer. It will be hard to replace the job I had, but it will be easy to replace the job they were trying to give me.”

    While you’re blaming union work rules for the company’s failure, you’re neglecting the true story:

    A poorly managed firm’s inevitable death delayed by forcing concessions from the workers.

    Do you realize how difficult it is for non-union firms to cut costs with wage cuts? It’s so difficult it’s rarely even tried. It was actually to Hostess’s advantage all these years that they were able to get a collective “Yes” to pay cuts from the union reps. They didn’t have to risk a bunch of individual “No’s,” which let’s face it, they would have gotten.

    Alas, that strategy has come to an end. Read this for an explanation:

    What we have here is a situation where a company offered a wage in the marketplace and couldn’t get any workers to accept it. Consequently, it went out of business. The word “competitive” gets thrown around a lot, often with the murkiest of meanings, but in this case there can be no doubt at all that a company, Hostess, was unable to pay a competitive wage. Ninety-two percent of its workers voted to walk out on their jobs rather than accept its wage, and they stayed out even after they were told it was the company’s final offer.

    Do you really think Hostess would have had better luck getting a “Yes” to pay cuts from their workers without the union? Really?

    Harp on the union rules all you want. You thought they could pay these guys less and get them to do more work?? Yeah, that’s going to happen….

  9. Whitfield says:

    It wasn’t the union, mismanagement, or poor sales. Reports are pouring in …Mayor Bloomberg was behind it!