Thread: Twinkie Maker Hostess to Close

Updated November 16, 2012, 11:35 a.m. ET

Twinkie Maker Hostess to Close

By RACHEL FEINTZEIG
Reuters

Hostess Brands is seeking to liquidate.

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 firing about 18,000 workers as it seeks to liquidate the 82-year-old business.



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.


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 striking workers, which number in the thousands Hostess said in court filings on Friday, were 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 took the top job at the company after its former leader abruptly resigned earlier this year, said the wind down will take months and 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" dismiss most of its 18,500 employees and focus on "selling its assets to the highest bidders."

Hostess's remaining inventory—loaves of bread and plastic packages of icing-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, before the company disclosed it would shut down.

Hostess filed court papers on Friday seeking a bankruptcy judge's approval to begin the wind-down. It estimates the process, which would wrap up operations at the company's plants, depots, retail outlets and corporate offices, will cost some $41.3 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 should take about a year, Hostess said, and will be financed in part by the company's $75 million bankruptcy loan.

The company said that while it was unsuccessful in luring a buyer for the business as a whole, it had received some "potentially-viable proposals" for certain pools of assets. It hopes that chunks of the business will continue to operate in the hands of a new buyer.

Hostess's current private equity owner, Ripplewood Holdings, is unlikely to recover anything in the liquidation.

The fate of the company's 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 is 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 brands and give up valuable shelf space already devoted to its own goods, Mr. Rayburn noted.

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 fresh collective-bargaining agreements. 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 on 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. Court papers indicate the company suffered $7.5 million to $9.5 million in losses as a result of the strike.

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, which was 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 liquidation of the 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 envisioned 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 with a hipster following. 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.

Write to Rachel Feintzeig at rachel.feintzeig@dowjones.com

http://online.wsj.com/article/SB10001424127887324556304578122632560842670.html

Twinkie hoarding begins!

By Parija Kavilanz@CNNMoney
November 16, 2012: 4:06 PM ET

NEW YORK (CNNMoney) -- Just hours after Twinkies maker Hostess declared it will shut down for good, grocery stores nationwide are already experiencing a run on Twinkies and the company's other iconic products like Wonder Bread, Hostess Cup Cakes and Ding Dongs.

"We're definitely seeing a sharp increase in purchases of Hostess products today," said Mike Siemienas, spokesman for grocery store operator Supervalu. "We expect this will continue as more consumers become aware of the news.

Irving, Texas-based Hostess Brands announced Friday that the company had initiated steps to shutter its operations, blaming a strike by bakers protesting a new contract that was imposed on them.

Siemienas said shoppers were snapping up Hostess products off of shelves across Supervalu (SVU, Fortune 500)'s network of grocery stores nationwide, including Albertsons, Jewel-Osco, Acme and Shaw's.

"These products are available while supplies last," he said. "But we're now preparing for the fact that we won't have them in the near future."

Related Story: Hostess Brands closing for good

When Supervalu stores run out of Twinkies and Ding Dongs completely, Siemienas said the company will fill up the empty shelf space with other store-brand snacks.

Twinkies sales were also on fire on Amazon (AMZN, Fortune 500). In the last 24 hours, Twinkies sales jumped over 31,000% on the retailer's "Movers & Shakers" sales ranking. On Friday, Hostess products accounted for 10 of the top 11 bestsellers in the grocery and gourmet food category. The 10-count box of Twinkies is No. 1, while the box of the orange cupcakes is No. 2 and a 6-pack of Hostess Sno Balls is in the 6th spot.

http://money.cnn.com/2012/11/16/news/companies/twinkies-hoarding-hostess/

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