Twinkie Maker Goes Belly Up

NEW YORK ( TheStreet) -- Hostess Brands, the maker of Wonder Bread, Ding Dongs, Ho Ho's, Sno Balls, Drakes Cakes and Twinkies, will liquidate its operations after the snack maker was unable to solve a labor dispute with its union employees and exit bankruptcy .

The Irving, Tx.,-based company has asked a White Plains, N.Y., judge for permission to file for a liquidation to sell the company's property, plant and equipment and shut down for good. Such a move will likely cost job losses for most of the Hostess's 18,500 workers and end a storied history for the company.

After filing for a second bankruptcy within the last decade in January, Hostess management and its unionized workers were unable to negotiate new pay and benefit packages, which could have kept the company in business, the company said in a Friday statement.

Earlier in November, Hostess's Bakery, Confectionery, Tobacco Workers and Grain Millers International Union employees went on strike to protest what were severe cuts to pay and benefit packages, after 92% of the union's workers rejected a new salary plan.

In response to the strike, Hostess closed some of its plants permanently, and company management gave workers an ultimatum -- end the strike by Thursday night or the company would shutter its doors for good.

On Thursday evening, Hostess determined that too few employees had returned to work for the company to remain in business. The liquidation will close 33 bakeries and over 500 distribution centers, Hostess said.

"We deeply regret the necessity of today's decision, but we do not have the financial resources to weather an extended nationwide strike," Chief Executive Gregory Rayburn said in a statement.

"Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders," Rayburn added.

When filing for bankruptcy in January, Hostess Brands cited an inability to renegotiate crippling pension and benefit plans with its unionized employees, which made the near 20,000 worker strong company vulnerable to cash shortages and an economic downturn.

For the company, which has made popular American breads and desserts since the 1930s, the January filing was its second trip into bankruptcy.

In 2004, the company formerly known as Interstate Bakeries went bankrupt and stayed in administration for over four years until it re-emerged as Hostess Brands in 2009. Friday's liquidation signals there will no third shot for the company.

On Thursday, BCTGM International Union president Frank Hurt said the company's demise was the "result of nearly a decade of financial and operational mismanagement," after hedge funds took control of the company and tried to make union workers bear the brunt of Hostess's financial challenges.

"What's happening with Hostess Brands is a microcosm of what's wrong with America, as Bain-style Wall Street vultures make themselves rich by making America poor," A.F.L.-C.I.O. President Richard Trumka added in a seperate statement.

Hostess, which is owned by private-equity firm Ripplewood Holdings, struggled to meet interest payments as its investors sought concessions from employees of the Irving, Tx., -based company. Nearly 80% of Hostess workers had unionized contracts, according to previous reports from The Wall Street Journal.

Burdened by debts, pension liabilities and the increased operating efficiency of competitors, Hostess suspended payments on union pensions in December and was struggling to make interest payments on a $700 million loan.

In its bankruptcy listing, Hostess Brands claimed between $500 million and $1 billion in assets and more than $1 billion of liabilities. The company also listed the Bakery & Confectionery Union & Industry International Pension Fund as its biggest unsecured creditor with a $944.2 million claim.

In January company arranged for $75 million in debtor-in-possession financing for its bankruptcy stay, drawing money from hedge fund Silver Point Capital and existing lenders with a first lien claim on its assets. That loan will remain in place as Hostess winds down business.

While in bankruptcy, Hostess Brands had pinned its hopes on improving its employee cost structure, and modernizing the company's plant and equipment.

When Hostess Brands emerged from a 2004 bankruptcy, it fought a 2007 bid from Mexican baked goods giant Grupo Bimbo and Ron Burkle of the Yucaipa Cos.

It exited bankruptcy in 2009 in a deal financed by Ripplewood Holdings, which received a controlling stake in the company for a $130 million capital commitment. General Electric's ( GE) GE Capital division, Monarch Alternative Capital and Silver Point Capital also provided hundreds of millions in rescue financing. However, even after exiting bankruptcy, the company struggled with employee costs and a lack of competitiveness.

Hostess Brands's popular Twinkies dessert was invented in the 1930s by the Continental Banking Company. Initially Twinkies had strawberry and banana fillings. During World War II, a shortage and rationing of bananas forced Continental Bakeries to switch the filling to vanilla, a turning point in American junk food lore.

Nearly a half billion Twinkies are reportedly made every year and former President Bill Clinton put a Twinkie in a time capsule, the company said on its Web site.

Continental Banking had a history that traced back to the 1840s until a 1995 merger with Hostess' predecessor Interstate Bakeries, which valued the company at $330 million.

Recently, the company looked to divest assets like its Mrs. Cubbison's brand, which it sold to Sugar Foods for $12 million in 2011, but was unable to sell other businesses to buyers like Kraft ( KFT), Campbell Soup ( CPB) and private-equity firms Blackstone ( BX) and KKR ( KKR), the Journal reported.

-- Written by Antoine Gara in New York

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