Twinkie Maker Hostess to Close
Hostess Brands Inc., 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.
The company, which filed for Chapter 11 in January, said it has requested bankruptcy-court authorization to close the business and sell its assets.
A victim of changing consumer tastes, high commodity costs and, most importantly, strained labor relations, Hostess ultimately was brought to its knees by a national strike orchestrated by its second-largest union.
The work stoppage, launched Nov. 9 by the Bakery, Confectionery, Tobacco Workers and Grain Millers Union to protest a fresh labor contract, affected about two-thirds of Hostess's 36 plants. The strike was making it impossible for the Irving, Tex., company to continue producing its baked goods, Chief Executive Gregory Rayburn said.
The CEO, a restructuring professional who ascended to the top of the company after its former leader abruptly resigned earlier this year, said the liquidation will take months but require few workers.
"We deeply regret the necessity of today's decision, but we don't have the financial resources to weather an extended nationwide strike," Mr. Rayburn said Friday. He said the company will "promptly" lay off most of its 18,500 employees and focus on "selling its assets to the highest bidders."
The company said the entire process, including wrapping up operations at the its plants, depots, retail outlets and corporate offices, should take about a year.
Hostess's remaining inventory—loaves of bread and plastic packages of cream-filled desserts—probably will be sold in bulk to a discounter or big-box store. The company will attempt to sell its plants and its brands, "everything and anything that we can," Mr. Rayburn said in an interview Thursday afternoon, before the company had announced it would shut down.
The fate of the company's ubiquitous brands remains uncertain, set to be decided by a bankruptcy court auction run by Hostess's investment bankers, or perhaps determined by a group of liquidators. Mr. Rayburn has said he's unsure if all of the company's brands—there are about 30, from Drake's to Ding Dongs—will sell or how much they might fetch.
On the one hand, the names have decades of brand equity, and there is "pretty significant demand" for the products, according to Mr. Rayburn. Hostess has revenue of about $2 billion annually. But a competitor would have to ramp up production if it took on the Twinkies or Ding Dong brand and give up valuable shelf space already devoted to its own goods, Mr. Rayburn noted.
Hostess, in a court filing Friday, said its closure will cost about $41 million in the first 13 weeks and that the liquidation of its accounts receivables and inventory will generate about $77 million in the first 10 weeks. The entire process will be financed in part by the company's $75 million bankruptcy loan.
The specter of liquidation has loomed large since the bankruptcy case, Hostess's second in recent years, kicked off in January. From the start, the company has warned that labor cuts were its only chance to survive and said the only other possible outcome was a full shutdown of the business. Both Hostess and its largest union, the International Brotherhood of Teamsters, have long agreed a widespread strike would spell the end of the company.
But Hostess has threatened liquidation before in the case—and during its last stint in Chapter 11—and not followed through. Earlier this year, it said a vote against its last, best, final offer by either of its two largest unions would prompt an immediate liquidation. But when the bakers union gave Hostess just that trigger, Hostess instead decided to take its case back to the court.
At the time, Mr. Rayburn said he was changing course because of an unfair voting process that had been skewed by management, a claim bakers union president Frank Hurt denied.
The company's roller coaster of a bankruptcy case nearly led it to reorganization. Months of negotiations, threats and labor trials ultimately brought all of Hostess's unions on board with a fresh collective-bargaining agreement. Some, like the Teamsters, gave their support willingly, though begrudgingly, while others, like the bakers union, were forced by a judge to accept the new deal.
The bakers union continued to attack the wage and benefit cuts and pension restrictions that form the heart of the new contract, even as Hostess shifted its focus to its reorganization plan, which was slated for an initial round of approval later this month.
"It's just way, way over the top," the bakers union's Mr. Hurt said of the labor contract in an interview Monday. The proposal garnered a near-unanimous rejection from members during a September vote. "It was an untenable proposal for our people," he said.
Mr. Rayburn earlier this week called on employees to return to work, vowing to pull the plug on the business if he couldn't get plants running again. As of Thursday morning, 13 plants were still operating below 50% capacity and three had been shut down—a sort of warning shot by the company that on Monday eliminated 627 jobs.
Mr. Rayburn blamed a host of factors, from years of mismanagement to a lack of capital investment to legacy labor costs, for the demise of the company, founded in 1927 as Schulze Baking Co.
"I think there's blame to go around everywhere," he said. "There's almost nowhere you can look that didn't play a role in the company ending up in this position."
Adam Hanft, a branding strategist behind Hanft Projects, sees the potential for new life in the death of a decades-old company. A fresh owner of the intellectual property, which includes everything from names to recipes to graphics, could revitalize the Hostess brands, which Mr. Hanft sees as weakened but not lacking potential. He raised the prospect of new flavors, limited-edition Twinkies, products co-branded with independent music groups and the potential for an international reach.
"Its nutritional emptiness in the right hands could be its core strength," he said, explaining that a buyer that embraces the brand's "kitschy," "deliciously retro" feel could be rewarded. He foresees a potentially diverse crowd of bidders for the property.
"It's the kind of iconic brand that might attract people who might not otherwise be interested in owning a consumer good," Mr. Hanft said.
This is just one example of how rediculous Unions are! I am happy that employees get a little extra money that they use to pay their Union member fees. But besides that Unions are nothing but crooks that help destroy our country.
Am I wrong?