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November 16, 2012

Twinkie-maker Hostess reaches the end of the line

NEW YORK — Twinkies may not last forever after all.

Hostess Brands Inc., the maker of iconic childhood treats including Ding Dongs, Wonder Bread and Drakes, is winding down its operations after struggling to keep up with rising labor costs and the ever-changing tastes of Americans, who have grown accustomed to a dizzying array of new snacks flooding supermarket aisles every year.

The company, whose roster of brands date as far back as 1888, filed a motion to liquidate Friday with U.S. Bankruptcy Court after striking workers across the country crippled its ability to maintain production.

Hostess CEO Greg Rayburn said in an interview that there was no buyer waiting in the wings to rescue the company. But without giving details, he said that there has been interest in some of its 30 brands, which include Dolly Madison and Nature’s Pride snacks. Experts agreed that it was likely the biggest brands would survive.

Hostess, based in Irving, Texas, filed for Chapter 11 protection in January, its second trip through bankruptcy court in less than three years. Unlike many of its competitors, Hostess had been saddled with high pension, wage and medical costs related to its unionized workforce. The company also faced intensifying competition from larger companies such as Mondelez International, the former snack unit of Kraft Foods that makes Oreos, Chips Ahoy and Nabisco.

The shuttering of Hostess means the loss of about 18,500 jobs. Hostess said employees at its 33 factories were sent home and operations suspended Friday. Its roughly 500 bakery outlet stores will stay open for several days to sell remaining products.

The move to liquidate comes after a long battle with its unions. Thousands of members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union went on strike last week after rejecting a contract offer that slashed wages and benefits. The bakers union represents about 30 percent of the company’s workforce.

A representative for the bakers union did not immediately return a call seeking comment.

Although many workers decided to cross picket lines this week, Hostess said it wasn’t enough to keep operations at normal levels; three plants were closed earlier this week. Rayburn said Hostess was already operating on thin margins and that the strike was a final blow.

“The strike impacted us in terms of cash flow. The plants were operating well below 50 percent capacity and customers were not getting products,” Rayburn said.

The company had reached a contract agreement with its largest union, the International Brotherhood of Teamsters, which this week urged the bakery union to hold a secret ballot on whether to continue striking.  

Ken Hall, general secretary-treasurer for the Teamsters, said his union members decided to make concessions after hiring consultants who found the company’s financials were in a dire situation.

“We believed there was a pathway for this company to return to profitability,” Hall said, noting that the liquidation could’ve been prevented if the bakery union had agreed some concessions as well.

Although Hall agreed that it was unlikely anyone would buy the entire company, he said “people are going to look for some fire sale prices” for some of the brands. For now, he expects Hostess products will be on shelves for another week or so.

“Frankly it’s tragic, particularly at this this time of year with the holidays around the corner,” Hall said, noting that his 6,700 members at Hostess were now out of a job.

Kenneth McGregor, a shipper for Hostess in East Windsor, Conn., arrived at the plant Friday morning and said he was told he was laid off immediately.

He blamed the bakery workers union for rejecting a proposed contract.

“They screwed us big time,” he said.

In a statement on the company website, CEO Rayburn said there would be “severe limits” on the assistance the company could offer workers because of the bankruptcy. The liquidation hearing will go before a bankruptcy judge Monday afternoon; Rayburn said he’s confident the judge will approve the motion.

“There’s no other alternative,” he said.

The company’s demise stoked nostalgia among customers as well.

Adil Ahmed, whose family still eats Hostess treats during the holidays, said he rushed to the supermarket Friday morning after hearing the news. Growing up in New Jersey, he said his Southeast Asian family bought Wonder Bread to dip in curries and loaded up on sweets from a nearby warehouse for the holidays.

“I have nephews and nieces – we have to pass on the tradition to the next generation,” said Ahmed, a 25-year-old union worker in Baltimore. He bought four boxes of Twinkies and other snacks for a family get together this weekend.

Samantha Caldwell of Chicago also took a quick detour on her way to work Friday morning after she heard the news on NPR. The 41-year-old attorney stopped at a CVS store.

She got a package of two Twinkies to have with her morning tea, and another for her 4-year-old son, who has never had one.

“This way he can say, ‘I had one of those,”’ she said.

–––

AP Reporters Stephen Singer and Ashley Heher contributed to this report.

Follow Candice Choi at www.twitter.com/candicechoi

 

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