Hostess mediation fails, interim wind-down motion approved by court

By Caroline Salls

Pittsburgh, Nov. 21 - Hostess Brands Inc.'s emergency interim motion to wind down its business and sell its assets has been approved by the U.S. Bankruptcy Court for the Southern District of New York.

According to a company news release, judge Robert Drain approved the motion after Hostess and the Bakery, Confectionery, Tobacco and Grain Millers Union (BCTGM) were unable to reach an agreement during an 11th-hour mediation on Tuesday.

As previously reported, Hostess is winding down the company after a nationwide strike initiated by the BCTGM, which began on Nov. 9, crippled operations at a time when the company lacked the financial resources to survive a significant labor action.

The wind down means the closure of 33 bakeries, 565 distribution centers, roughly 5,500 delivery routes, 570 bakery outlet stores and the loss of 18,500 jobs.

Hostess said it intends to keep about 3,200 employees to assist with the initial phase of the winddown. Employee headcount is expected to decrease by 94% within the first 16 weeks of the winddown.

The company said the entire process is expected to be completed in one year.

The company said the court order allows it to return excess ingredients and packaging, provides liquidity through an amended debtor-in-possession financing agreement and consensual use of cash collateral and allows the company to implement a non-executive employee retention plan to ensure it has the necessary personnel to implement the winddown.

Hostess said it spent the better part of 18 months negotiating with its key constituents to obtain a consensual agreement to lower costs to a sustainable level. The company had obtained the support of its largest union, the International Brotherhood of Teamsters, and its lenders.

However, the company said BCTGM leadership chose not to negotiate a new labor contract and instead, when presented with a final offer, "launched a campaign to cripple the company's operations and force it to liquidate."

Hostess Brands is an Irving, Texas-based operator of regional bakeries. The company filed for bankruptcy on Jan. 11, 2012. Its Chapter 11 case number is 12-22052.

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