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Hostess begins firings after request to close down approved

Troy R. Bennett | BDN
Troy R. Bennett | BDN
Striking Hostess worker Bill Kennedy holds a sign outside the plant in Biddeford on Tuesday, Nov. 20, 2012.
By Dawn McCarty and Phil Milford, Bloomberg News

Hostess Brands, the baker of Twinkies and Wonder bread, began firing employees after winning interim court approval to shut down and start selling assets that a financial adviser said may bring in $1 billion.

U.S. Bankruptcy Judge Robert Drain on Wednesday approved Hostess’s request to close at a hearing in White Plains, N.Y. Chief Executive Officer Gregory Rayburn said 15,000 workers would be fired the same day so they could start receiving unemployment benefits. Hostess said Friday that it needed to liquidate because a weeklong strike by its bakers’ union crippled operations.

Sales of Hostess assets may generate about $1 billion, financial adviser Joshua Scherer of Perella Weinberg Partners told Drain. The judge approved going-out-of-business sales at Hostess’s retail outlets and the return of excess ingredients and packaging. Final approval of the wind-down plan will be considered Nov. 29, and Hostess will seek court approval later for sales of major assets, such as its brands.

There is “very intense” competition for the brands, Scherer said in court. A sale would be a “once in a lifetime opportunity for our competitors to get iconic brands,” he said. The 82-year-old company makes Wonder bread, Hostess CupCakes, Ding Dongs, Ho Hos and Drake’s Devil Dogs.

Most of the wind-down will take place in the first three months, said Heather Lennox, a lawyer for Hostess with Jones Day. Quick asset sales may preserve some jobs, Scherer said. A prospective buyer visited a Drake’s cake factory on 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 firings. Hostess has been spending about $1 million a day for payroll since halting operations last week, down from $2 million a day, Rayburn said.

Hostess said about 3,200 employees will stay on temporarily to clean plants and mothball equipment. Drain approved a plan to retain the employees, as well as a request to use cash collateral and an amended financing agreement for the company.

Drain rejected a request by U.S. Trustee Tracy Hope Davis to convert the Hostess case to a Chapter 7 liquidation from Chapter 11, which would have handed control over the asset sales to a trustee. Conversion “would be a disaster,” Drain said.

Charles Carroll, an adviser to Hostess with FTI Consulting Inc., argued that a trustee would “take time to get up to speed” while the assets’ values declined.

Drain adjourned the hearing Monday 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 Monday, citing “serious questions as to the logic behind the decision.”

Hostess, based in Irving, Texas, and the union agreed to Drain’s request to enter confidential mediation under his supervision. Company and union officials acted in good faith in Tuesday’s talks at the law offices of Jones Day in New York, Drain said.

Mediation with the Bakery, Confectionery, Tobacco and Grain Millers International Union “was unsuccessful,” Hostess said in a statement. Frank Hurt, the union’s international president, didn’t immediately return a phone message seeking comment on Drain’s ruling.

Hostess asked Drain for approval to shut down 36 bakeries, 242 depots, 216 retail stores, and 311 hybrid depot-store facilities, according to court filings. There are 58 other leased or owned sites used for storage, warehousing of products or parking. The plants are in 22 states, stretching from Alaska to New Jersey.

Ken Hall, general secretary-treasurer of the Teamsters union that represents Hostess drivers, said in a statement that the liquidation process will take six months.

“With Judge Drain’s ruling today, more than 18,500 workers will be left without a job as Hostess proceeds with the liquidation of the company,” Hall said in the statement. “For our 6,700 Teamster Hostess members, our union will be focusing its efforts on ensuring that they receive what they are owed in the form of wages for hours worked accrued benefits.”

Laid-off Hostess worker Mark Popovich sued the company alleging that his termination without 60 days advance written notice violates the U.S. Worker Adjustment and Retraining Notification Act, known as the WARN Act. Popovich, who worked as a loader in the shipping department of a Hostess facility in Ohio, seeks to represent all laid off Hostess workers and seeks unpaid wages, vacation pay and benefits for 60 days, with “first priority administrative expense status,” according to a complaint filed in U.S. Bankruptcy Court in White Plains.

Hostess sought court protection in January, its second time in bankruptcy, listing assets of $982 million and debt of $1.43 billion.

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