Hostess Brands won interim approval from a bankruptcy judge to shut down and start selling the Twinkie maker’s assets after last-minute mediation with its bakers union failed to resolve a contract dispute, leaving more than 18,000 jobs at risk.
U.S. Bankruptcy Judge Robert Drain on Wednesday approved Hostess’ request to close at a hearing in White Plains, N.Y. Chief Executive Officer Gregory Rayburn said 15,000 workers will be fired Wednesday so they can start receiving unemployment benefits.
Hostess said it needed to liquidate because a weeklong strike by the union crippled operations.
Sales of Hostess assets may generate about $1 billion, financial adviser Joshua Scherer of Perella Weinberg Partners told Drain on Wednesday. Drain approved going-out-of-business sales at Hostess’ retail outlets and the return of excess ingredients and packaging. Final approval of the wind-down will be considered Nov. 29, and Hostess will seek court approval later for sales of major assets, such as its brands.
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There is “very intense” competition for the brands, Scherer said in court. A sale would be a “once in a lifetime opportunity for our competitors to get iconic brands,” he said.
The 82-year-old company makes Twinkies, Wonder bread, Hostess CupCakes, Ding Dongs, Ho Hos and Drake’s Devil Dogs.
Most of the wind-down will take place in the first three months, said Heather Lennox, a lawyer for Hostess. Quick asset sales may preserve some jobs, Scherer said.
A prospective buyer visited a Drake’s cake factory yesterday and asked whether its acquirer “could rehire employees who worked here,” he said.
Rayburn asked Drain to shield company officials from lawsuits over Wednesday’s firings. Hostess said about 3,200 employees will stay on temporarily to clean plants.
Drain approved a plan to retain the employees, as well as a request to use cash collateral and an amended financing agreement for the company.
He rejected a request by U.S. Trustee Tracy Hope Davis to convert the Hostess case to a Chapter 7 liquidation from Chapter 11, which would have handed control over the asset sales to a trustee. Drain said the conversion “would be a disaster.”
Charles Carroll, an adviser to Hostess with FTI Consulting, argued that a trustee would “take time to get up to speed” while the assets’ values declined.
Drain adjourned the hearing two days ago and sent the parties off for a last-ditch effort to negotiate terms that might keep the company afloat.
Hostess said it was forced to opt for liquidation after the bakers union struck Nov. 9. The union, representing about 5,000 Hostess workers, walked out after Drain imposed contract concessions opposed by 92 percent of the union’s members.
“I’m giving the union as well as the debtors and their lenders a last chance to try and work those issues out in private,” Drain said Nov. 19. He cited “serious questions as to the logic behind the decision” to strike.
Hostess, based in Irving, Texas, and the union agreed to Drain’s request to enter confidential mediation under his supervision. Both acted in good faith in Tuesday’s talks, Drain said Wednesday.
“A mediation with the Bakery, Confectionery, Tobacco and Grain Millers Union was unsuccessful,” Hostess said Tuesday.
Corrina Christensen, a spokeswoman for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, didn’t return a call seeking comment on the failed mediation.
“Unfortunately, the last-minute mediation efforts by Judge Drain were not successful,” Ken Hall, of the Teamsters union that represents Hostess drivers, said in a statement. “This is a tragic outcome.”
Hostess asked Drain to approve closing 36 bakeries, 242 depots, 216 retail stores and 311 hybrid depot-store facilities, according to court filings. There are 58 other leased or owned sites used for storage, warehousing of products or parking. The plants are in 22 states, stretching from Alaska to New Jersey.
Those in Washington are in Seattle, Kent, Everett, Bellingham, Bremerton, Tumwater, Longview, Moses Lake, Yakima and Spokane.
Hostess sought court protection in January, its second time in bankruptcy, listing assets of $982 million and debt of $1.43 billion.
Material from Seattle Times archive is in this report.