Twinkie Maker Hostess to Close

By RACHEL FEINTZEIG, MIKE SPECTOR and JULIE JARGON

Reuters

Hostess Brands is seeking to liquidate.

The seemingly imperishable Twinkie finally may have an expiration date.
Hostess Brands Inc., the 85-year-old maker of iconic treats such as Twinkies, Ding Dongs and pantry staples like Wonder Bread, on Friday said it would go out of business after failing to reach agreement on wage and pension cuts with its bakers' union.

Hostess Brands, the maker of iconic treats such as Twinkies and traditional pantry staple Wonder Bread, said Friday it is shuttering its plants and will seek to liquidate the 82-year-old business. Rachel Feintzeig reports on Markets Hub. Photo: AP.

The Irving, Texas-based company, which filed for Chapter 11 for a second time in January, closed all factories and asked a judge for permission to start proceedings that will mean job losses for about 18,500 employees and could result in more than 30 brands being sold or disappearing. Liquidation firm Great American Group Inc GAMR 0.00% . and C. Dean Metropoulos & Co., owner of beer brands including Pabst Blue Ribbon, have signaled interest in Hostess's brands.
The move endangers American treats and snacks that have graced supermarket shelves for decades, but have had trouble keeping up with trends toward healthier snacking. The Twinkie—a sugary mix of rich cream filling encased in a tubular yellow cake—appeared often in lunchboxes and popular films.

The collapse and probable liquidation of Twinkie-maker Hostess Brands is a sobering reality check for unions and workers looking to shift the post-recession balance of power with private employers. Joe White has details on The News Hub. Photo: Getty Images.

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Associated Press

Diana McKinley from the Seattle local 9 pickets on Thursday at Hostess plant in Sacramento, Calif.

Barrons.com Fund Columnist Brendan Conway joins the News Hub to preview the Friday markets; The Dow has been down six of the last seven sessions, Hostess liquidates after strike, and the White House talks 'Fiscal Cliff.' Photo: Getty Images.

Corporate Intelligence

In a letter posted on a new site set up to communicate with employees and suppliers through the liquidation process, Hostess's CEO pinned the blame on its striking union. Read more..

It also showed organized labor's willingness to test the boundaries of wage and benefit givebacks. During and after the 2008 financial crisis, auto workers and others readily agreed to concessions deemed crucial for survival. But this year, workers at Caterpillar Inc. CAT +0.77% and Hostess walked off the job instead. Caterpillar's union later relented.


On Friday, as news of the shutdown spread, shoppers flocked to stores to stock up on Hostess treats. That led to a run on products Friday at a Hostess outlet store in Waukegan, Ill., a city about 40 miles north of Chicago.
Signs saying "last day sale" advertised loaves of Wonder Bread for 59 cents each. One man left with two shopping carts full of the bread.
"All my life I've known Hostess," said Bertha West, 68, who said her mother put Twinkies in her lunch. "It seems unreal."
The treats were cropping up on Internet sales and auction sites at Sotheby's-like prices. A box of Twinkies, with the description "Twinkies: American Snack; one of the last boxes for the Zombie Apocalypse!" is listed on eBay EBAY +1.59% with an opening bid of $10,000, though no offer has been made. A package claiming to be "the last box of Hostess Twinkies EVER!" is going for $3.13, with seven bids at last count.
Hostess's latest woes took hold when thousands of employees in its bakers union went on strike Nov. 9 in protest of a court-imposed labor contract that cut wages, commissions, and health care benefits and changed the structure of pension plans in a way that could reduce payouts to retirees.
The strike affected roughly two thirds of Hostess's 36 plants, and made it impossible for the company to continue producing its baked goods, Hostess said Friday.
The company's burdensome debt traces back to Hostess's first trip through bankruptcy in 2004. Missteps by a private-equity firm, hedge funds and managers since burdened the company, despite its more than $2 billion in annual sales.
"I think there's blame to go around everywhere," said Chief Executive Gregory Rayburn, a turnaround expert hired this year.
Increased costs for ingredients and fuel, a failure to adjust to demands for healthier foods, and the U.S. recession combined to weaken Hostess.
A liquidation has loomed large since Hostess's latest bankruptcy case kicked off in January. From the start, the company has warned that labor cuts were its only chance to survive.
Months of back-and-forth threats and court proceedings ultimately led to delivery-truck drivers and some plant workers represented by the International Brotherhood of Teamsters to agree to deep concessions, but the bakers' union, known as the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, resisted.
In the end, a bankruptcy judge gave Hostess permission to force the bakers union to accept a new five-year labor contract that featured an 8% wage cut in the first year, new pension plan restrictions and a 17% increase in health care costs for employees.
The bakers' union went on strike. "Our members decided they were not going to take any more abuse from a company they have given so much to for so many years," said Frank Hurt, the bakers' union president, in a statement Friday evening.
However, the Teamsters on Friday stood by its decision to accept the proposed cuts. As the bakers' union went on strike, the Teamsters largely didn't cross picket lines, said Ken Hall, the Teamsters' treasurer and general secretary. They picked up Hostess products for delivery when there weren't picket lines present, he said.
Hostess traces its beginnings to the 1927 founding of Schulze Baking Co., according to court papers. The company gobbled competitors over the years and ended up with 372 separate bargaining contracts for workers, 5,500 delivery routes and a vast production system.
Hostess emerged from its second stay in bankruptcy in February 2009 owned by private-equity firm Ripplewood Holdings LLC and saddled with more than $700 million in debt that crimped investment.
Ripplewood and lenders, including hedge-funds Silver Point Capital LP and Monarch Alternative Capital LP, hired new management that failed to keep pace with shifting consumer tastes to healthier foods and pursued marketing promotions that backfired.

Hostess Treats Through the Years

Hostess management said work rules from existing labor agreements made it hard to improve productivity and spend money efficiently. For example, some rules required different workers to deliver bread and cakes, the company said.
Unions had made concessions during Hostess's first bankruptcy, accepting lower wages and changing delivery systems that saved the company $80 million a year. The second go round, the unions initially balked at further steep cuts.
Hostess's investors plowed another $60 million into Hostess last year but wouldn't provide more without new labor givebacks. Investors lost money as a result of Hostess's fall, according to people close to the investment firms.
Now, the fate of Hostess's 30 brands likely will be decided by bankers and liquidators. Some private-equity firms, including Hilco Trading LLC and Gordon Brothers Group, specialize in buying brands of defunct companies on the cheap and repurposing them, such as with Polaroid or Sharper Image. Representatives for Hilco and Gordon Brothers declined to comment.
Another one of these firms, Great American Group Inc., has been looking at Hostess's brands and real-estate and is interested in buying assets, said Mark Weitz, the president of the group's industrial business.

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Bloomberg News

Customers swept shelves of Hostess treats. Above, a store in Peoria, Ill.

Consumers hustled to take advantage of the news. In Waukegan, store employees scrambled to replenish empty shelves. One employee hastily marked "X" in red ink on boxes of cupcakes to indicate discounts. Several shoppers asked, "Where are the Twinkies?" There weren't any left.