WHITE PLAINS, N.Y. (AP) -- Twinkies won't die that easily after all.
Hostess Brands Inc. and its second largest union will go into
mediation to try and resolve their differences, meaning the company
won't go out of business just yet. The news came Monday after Hostess
moved to liquidate and sell off its assets in bankruptcy court citing a
crippling strike last week.
The bankruptcy judge hearing the case said Monday that the parties
haven't gone through the critical step of mediation and asked the lawyer
for the Bakery, Confectionery, Tobacco Workers and Grain Millers
International Union, which has been on strike since Nov. 9, to ask his
client, who wasn't present, if the union would agree to participate. The
judge noted that the bakery union, which represents about 30 percent of
Hostess workers, went on strike after rejecting the company's latest
contract offer, even though it never filed an objection to it.
"Many people, myself included, have serious questions as to the logic
behind this strike," said Judge Robert Drain, who heard the case in the
U.S. Bankruptcy Court in the Southern District of New York in White
Plains, N.Y. "Not to have gone through that step leaves a huge question
mark in this case."
Hostess and the union agreed to mediation talks, which are expected to begin the process on Tuesday.
In an interview after the hearing on Monday, CEO Gregory Rayburn said
that the two parties will have to agree to contract terms within 24
hours of the Tuesday since it is costing $1 million a day in overhead
costs to wind down operations. But even if a contract agreement is
reached, it is not clear if all 33 Hostess plants will go back to being
operational.
"We didn't think we had a runway, but the judge just created a
24-hour runway," for the two parties to come to an agreement, Rayburn
said.
Hostess, weighed down by debt, management turmoil, rising labor costs
and the changing tastes of America, decided on Friday that it no longer
could make it through a conventional Chapter 11 bankruptcy
restructuring. Instead, the company, which is based in Irving, Texas,
asked the court for permission to sell assets and go out of business.
It's not the sequence of events that the maker of Twinkies, Ding
Dongs and Ho Ho's envisioned when it filed for bankruptcy in January,
its second Chapter 11 filing in less than a decade. The company, who
said that it was saddled with costs related to its unionized workforce,
had hoped to emerge with stronger financials. It brought on Rayburn as a
restructuring expert and was working to renegotiate its contract with
labor unions.
But Rayburn wasn't able to reach a deal with the bakery union. The
company, which had been contributing $100 million a year in pension
costs for workers, offered workers a new contract that would've slashed
that to $25 million a year, in addition to wage cuts and a 17 percent
reduction in health benefits. But the bakery union decided to strike.
By that time, the company had reached a contract agreement with its
largest union, the International Brotherhood of Teamsters, which urged
the bakery union to hold a secret ballot on whether to continue
striking. Although many bakery workers decided to cross picket lines
this week, Hostess said it wasn't enough to keep operations at normal
levels.
Rayburn said that Hostess was already operating on razor thin margins
and that the strike was the final blow. The company's announcement on
Friday that it would move to liquidate prompted people across the
country to rush to stores and stock up on their favorite Hostess treats.
Many businesses reported selling out of Twinkies within hours and the
spongy yellow cakes turned up for sale online for hundreds of dollars.
Even if Hostess goes out of business, its popular brands will likely
find a second life after being snapped up by buyers. The company says
several potential buyers have expressed interest in the brands. Although
Hostess' sales have been declining in recent years, the company still
does about $2.5 billion in business each year. Twinkies along brought in
$68 million so far this year.
Judge asks Hostess to mediate with union
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Judge asks Hostess to mediate with union
