Twinkies live on - at least for one more day under Hostess Brands ownership.
The bakery giant and its labor unions have agreed to a Tuesday
mediation session over a crippling labor strike the company cited as the
final trigger for the emergency shutdown Hostess began last week.
The temporary reprieve in the labor-management standoff came in a
White Plains, N.Y., hearing Monday in which U.S. Bankruptcy Court Judge
Robert Drain questioned the rationale for the strike by the Bakery,
Confectionery, Tobacco Workers and Grain Millers International Union.
Drain cited "serious questions" about the strike because the union
rejected Hostess' latest contract offer without filing an objection to
it or discussing the possibility of going to mediation. The union
represents about 5,000 of the company's 18,500 workers.
Founded in 1930, Texas-headquartered Hostess is one of the nation's
largest bakers and wholesale distributors of snack cakes and bread.
Besides cream-filled golden Twinkies, its products include such iconic
brands as Ding Dongs, Ho Hos and Wonder bread.
But even as it
produced and distributed those still-popular brands, the firm faced more
than $1 billion in debt, costly labor union contracts, management
criticism and changing U.S. consumer tastes.
Those issues
prompted Hostess to file a motion Friday arguing that the normal Chapter
11 reorganization it has been pursuing since January - the firm's
second bankruptcy procedure in recent years - was insufficient for the
firm's survival.
Instead, court records show Hostess sought approval for a one-year emergency shutdown that would:
•
Create a bonus pay plan for 19 corporate officers and high-level
managers and some non-senior employees who would carry out the shutdown.
• Authorize hiring of third-party contractors for security, accounting and other services needed for the closing.
•
Provide legal protection against potential lawsuits for company
directors and officers who either developed the shutdown plan or would
implement it.
• Give asset-based lenders priority for repayment over other company creditors.
• Allow expedited cancellation of unwanted contracts and unexpired leases.
• Permit non-consensual use of cash collateral provided by some of the firm's creditors.
In court papers, Hostess said it has struggled with "an inflated
cost structure" that has put the company "at a profound competitive
disadvantage."
The costs largely stem from union labor
contracts that have "never been meaningfully addressed" or modified, the
company contended. Without such changes, "Hostess simply cannot emerge
as a viable competitor," the firm said.
But the company's 12 unions argue that Hostess' problems are largely of its own making.
Corporate missteps include "years of underinvestment in products,
facilities and equipment, long-term neglect of once-dominant brands and
hollowing-out of a distribution system that once provided a competitive
advantage," wrote Henry Wilson, a financial executive who analyzed
Hostess for a provisional labor management committee created by the
company and the Teamsters union.
Wilson's conclusions, filed
with the bankruptcy court in March, also cited failure to develop newer,
higher-growth products, an overly compliant corporate board and a
"grossly overleveraged" debt structure with Wall Street lenders that was
imposed during the company's prior bankruptcy.
U.S. Bankruptcy
Trustee Tracy Hope Davis joined Hostess unions in opposing the firm's
shutdown plan. In a court filing, Davis criticized the provisions that
would "grant bonuses to insiders" and "cherry-pick" which administrative
claims get paid.
Davis wrote that the case should be
converted from a reorganization to a Chapter 7 procedure. That would
authorize a bankruptcy trustee to liquidate Hostess and distribute the
assets in accordance with the U.S. Bankruptcy Code priority scheme.
USA Today