Hostess Brands Inc. will start selling off the rights to Twinkies, Ding Dongs and other baked brands after a federal bankruptcy judge on Wednesday approved its plan for an “orderly wind-down.”
The company will also start shrinking its employee head count to 3,200 workers from 18,500, the 82-year-old pastry maker said.
Judge Robert Drain of the U.S. Bankruptcy Court in the Southern District of New York gave Hostess the go-ahead to start fielding bidders for its assets, Hostess said.
Drain’s approval came after the failure Tuesday of several hours of “11th-hour mediation” between Hostess and the Bakery, Confectionery, Tobacco and Grain Millers Union.
Hostess first moved to shut down its operations last week, blaming the union for a strike that “crippled its operations at a time when the company lacked the financial resources to survive a significant labor action.”
Workers who walked off the job accused Hostess of awarding pay hikes to executives while pillaging employee benefits and wages.
On Wednesday, the day before Thanksgiving, Hostess Chief Executive Gregory Rayburn testified that layoffs of 15,000 employees would begin immediately, with head counts shrinking 94 percent within 16 weeks. Some 3,200 workers would remain to see the closing through.
The company said its “inflated cost structure” — which it attributed primarily to its collective bargaining agreements with unions — put it at a “profound competitive disadvantage.”
Hostess also said it will close 33 bakeries, 565 distribution centers, 5,500 delivery routes and 570 bakery outlet stores.
The dismantling of the company will take about a year, according to the company.
But there seems to be no shortage of potential bidders for Hostess and its cult-favorite brands, which include Ho Hos and Wonder Bread.
Possible buyers include Hurst Capital, Flowers Foods, Sun Capital Partners, Bimbo Group and Pabst Blue Ribbon backer C. Dean Metropoulos and Co., according to reports and analyst speculation.
Quipped television host Jimmy Fallon on Twitter: “Yeah, beer and Twinkies — or as I called that in college, ‘brunch.’ ’’
There is “very intense” competition for Hostess’ brands, Joshua Scherer of Perella Weinberg Partners LP told Drain at a hearing in White Plains, N.Y. A sale would be a “once-in-a-lifetime opportunity for our competitors to get iconic brands,” he said.
Most of the wind-down would take place in the first three months, a Hostess lawyer said. The initial focus would be on “selling assets to continue as a going concern,” followed by an open auction, Heather Lennox of the law firm Jones Day told Drain.
Quick asset sales may preserve some jobs, Scherer said. A prospective buyer visited a Drake’s cake factory Tuesday and asked whether its acquirer “could rehire employees who worked here,” he said.
Rayburn asked Drain to shield company officials from lawsuits over the planned firings.
Drain didn’t immediately rule on a request by U.S. Trustee Tracy Hope Davis to convert the Hostess case to a Chapter 7 liquidation from Chapter 11, which would hand control over the asset sales to a trustee.
Company officials argued that a trustee would “take time to get up to speed” while the assets’ values declined. Drain asked the U.S. Trustee’s office, an arm of the Justice Department that oversees bankruptcies, to search for a person who might be able to supervise a Chapter 7 liquidation.
Drain adjourned the hearing two days ago and sent the parties off for a last-ditch effort to negotiate terms that might keep the floundering company afloat. Hostess said it was forced to opt for liquidation after the bakers’ union went on strike Nov. 9.
The union, representing about 5,000 Hostess workers, walked out after Drain imposed contract concessions opposed by 92 percent of the union’s members.
“I’m giving the union as well as the debtors and their lenders a last chance to try and work those issues out in private,” Drain said Nov. 19. He cited “serious questions as to the logic behind the decision” to strike.