Twinkies live on - at least for one more day under Hostess Brands ownership.
The bakery giant and its labor unions have agreed to a Tuesdaymediation session over a crippling labor strike the company cited as thefinal trigger for the emergency shutdown Hostess began last week.
The temporary reprieve in the labor-management standoff came in aWhite Plains, N.Y., hearing Monday in which U.S. Bankruptcy Court JudgeRobert 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 unionrejected Hostess' latest contract offer without filing an objection toit or discussing the possibility of going to mediation. The unionrepresents about 5,000 of the company's 18,500 workers.
Founded in 1930, Texas-headquartered Hostess is one of the nation'slargest bakers and wholesale distributors of snack cakes and bread.Besides cream-filled golden Twinkies, its products include such iconicbrands as Ding Dongs, Ho Hos and Wonder bread.
But even as itproduced and distributed those still-popular brands, the firm faced morethan $1 billion in debt, costly labor union contracts, managementcriticism and changing U.S. consumer tastes.
Those issuesprompted Hostess to file a motion Friday arguing that the normal Chapter11 reorganization it has been pursuing since January - the firm'ssecond bankruptcy procedure in recent years - was insufficient for thefirm'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-levelmanagers 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 companydirectors and officers who either developed the shutdown plan or wouldimplement 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 inflatedcost structure" that has put the company "at a profound competitivedisadvantage."
The costs largely stem from union laborcontracts that have "never been meaningfully addressed" or modified, thecompany contended. Without such changes, "Hostess simply cannot emergeas 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 andhollowing-out of a distribution system that once provided a competitiveadvantage," wrote Henry Wilson, a financial executive who analyzedHostess for a provisional labor management committee created by thecompany and the Teamsters union.
Wilson's conclusions, filedwith 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 wasimposed during the company's prior bankruptcy.
U.S. BankruptcyTrustee Tracy Hope Davis joined Hostess unions in opposing the firm'sshutdown plan. In a court filing, Davis criticized the provisions thatwould "grant bonuses to insiders" and "cherry-pick" which administrativeclaims get paid.
Davis wrote that the case should beconverted from a reorganization to a Chapter 7 procedure. That wouldauthorize a bankruptcy trustee to liquidate Hostess and distribute theassets in accordance with the U.S. Bankruptcy Code priority scheme.