News From Terre Haute, Indiana

Business

November 17, 2012

No more Twinkies: Hostess goes out of business

TERRE HAUTE — Failed negotiations seem to have soured the future of an iconic brand of sweets.

Hostess Brands Inc. filed a motion to liquidate Friday in the U.S. Bankruptcy Court, just months after filing for Chapter 11 bankruptcy protection in January. The organization’s predecessor company, Interstate Bakeries, filed for bankruptcy protection in 2004, changing its name to Hostess after emerging in 2009.

But for generations of consumers, the corporate name was an afterthought compared to products such as Twinkies, Ho-Ho’s, Ding Dongs and Wonder Bread.

Christina Cash, of Paris, Ill., exited the Hostess bakery and outlet store on U.S. 41 South that afternoon, disappointed and without her kids’ Twinkies.

“I’ve got a 5-year-old that’s going to be awfully disappointed about her Twinkies,” she said. “It’s awful. It’s the stuff we grew up on.”

Cash said her family learned of the news on Facebook earlier that morning, and as she had to come to Terre Haute anyway, she thought she’d stop by the outlet store and buy some of the yellow, cream-filled sponge cakes one last time. But, as she learned upon entry, the store was already out of that product.

Staff inside the Hostess store on Fort Harrison and N. 14th Street said they’d been instructed to offer no comment on the announcement or future plans for the location.

But outside, shopper Larry Poole said the news was disappointing.

“It’s a shame that another union takes down another business, but it’s happening all over the country,” he said, adding he and his wife frequently shopped at the northside store.

“Another American institution...,” he said, gesturing his thumb downward and snorting.

According to an Associated Press report, the filing will result in the loss of about 18,500 jobs. Employees at 33 factories were sent home and operations suspended Friday. The company’s 500 bakery outlet stores will remain open for a few days to sell off remaining product, the report states.

Rich Smith, a contributing analyst for The Motley Fool, said the brands themselves could eventually come back to store shelves, even if the corporation itself does not.

“Clearly, there's a market for this product, calories and fat content notwithstanding. What's more, I wouldn't think that even liquidation is the end of the world. Even if Hostess ends up selling off its property, plant, and equipment, it stands to reason that someone will be buying same,” he stated in an e-mail. “And if there's a market for the product, chances are that whoever buys the assets will go right back into the Twinkie-baking business.”

According to the Associated Press report, analysts are blaming the company’s failure on a number of factors, ranging from America’s movement toward healthier foods to the high pension, wage and medical costs associated with a unionized workforce.

Hostess, based in Irving, Texas, was reportedly contributing $100 million a year in pension costs. A new, proposed contract offer would have slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits.

Tensions between management and workers were also ongoing. Hostess came under fire this year after it was revealed that nearly a dozen executives received pay hikes of up to 80 percent in 2011 even as the company was struggling. Although some of those executives later agree to reduced salaries, others — including the former CEO Brain Driscoll — had left the company by the time the pay hikes came to light.

The move to liquidate comes after thousands of members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union went on strike last week after rejecting the latest contract offer. The bakers union represents about 30 percent of the company’s workforce.

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. Hostess CEO Gregory 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,” he 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

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.

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,” Rayburn said.

Locally, Bob Baesler, owner of Baesler’s Market on Poplar Street, said the Hostess decision won’t affect his business much. The company, he said, had great delivery drivers and those employees will be the ones who ultimately lose the most.

"The product line was such a great line, someone will buy that up," he said, predicting the individual items will return to shelves some day.

Brian Boyce can be reached at 812-231-4253 or brian.boyce@tribstar.com. The Associated Press contributed to this report.

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