The company announced Friday, Nov. 16, that it plans to sell its assets, including its iconic brands and facilities, and wind down its operations after the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union failed to end their strike by a 5 p.m. deadline on Thursday.
With the ongoing strike, Hostess determined that it didn't have enough employees to restore its operations.
Hostess intends to seek approval to liquidate from Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York in White Plains on Nov. 19. Hostess filed its liquidation motion Friday morning.
"We deeply regret the necessity of today's decision, but we do not have the financial resources to weather an extended nationwide strike," Hostess CEO Gregory F. Rayburn said in a Friday 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."
Members of the BCTGM went on strike Nov. 9 and as of Tuesday, there were picket lines at 21 of its 33 bakeries.
On Nov. 12, Hostess permanently closed three plants in Seattle, Cincinnati and St. Louis due to the strike and two days later announced that it would be forced to liquidate if employees didn't return to work by the end of the workday on Thursday.
The closure of the three facilities caused the loss of 627 jobs: 110 in Seattle, 152 in Cincinnati and 365 in St. Louis. The Seattle factory produced Hostess cake products, while the Cincinnati facility made Butternut, and Beefsteak Wonder breads. The St. Louis plant produced Hostess cakes and the Nature's Pride and Wonder bread brands.
The union began its strike in response to the company winning court approval to impose new collective bargaining agreements on its workers after 92% of the BCTGM union voted to reject the modifications.
While the International Brotherhood of Teamsters workers voted to accept the modified CBAs, BCTGM members voted to reject the new work agreements on Sept. 14.
Drain approved the debtor's request to enforce the CBAs on its BCTGM local unions on Oct. 3, prompting the BCTGM the next day to send a letter to principal officers of Hostess' local unions, telling them to take a strike vote as soon as possible.
Hostess noted that its offer to the BCTGM gave the 12 unions it covered a 25% ownership stake in the company, representation on the board of directors and $100 million in reorganized debt. The offer also included wage, benefit and work rule concessions.
Hostess has 18,300 employees, 83% of which are subject to more than 360 CBAs with 12 separate unions.
Hostess will now close 30 more bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores throughout the United States. According to Friday's statement, delivery of products to retail stores will continue until all of Hostess' already-baked products are sold.
Hostess said its debtor-in-possession lenders agreed to allow Hostess to access its $75 million loan to fund the wind-down process. Silver Point Finance LP, Monarch Alternative Capital LP, Gannett Peak CLO I Ltd. and Credit Value Partners LP are providing the loan. Silver Point owns 12.28% of Hostess' equity, while Monarch's affiliates hold 8.59%.
The Irving, Texas, company traces its roots to the founding of Schulze Baking Co. in 1927. Hostess first filed for Chapter 11 as Interstate Bakeries Corp. on Sept. 22, 2004, in the U.S. Bankruptcy Court for the Western District of Missouri in Kansas City. The debtor exited from bankruptcy protection on Feb. 3, 2009.
Hostess filed for bankruptcy protection again on Jan. 11 to effect the "fundamental operational and financial changes that the debtors' businesses require in light of their declining performance, aging infrastructure, strained liquidity levels and excessive debt, and the significant challenges facing the debtors, including, but not limited to, uncompetitive and unsustainable labor and legacy costs and an intensified competitive environment," former CEO Brian J. Driscoll said in court filings.
Since its 2009 exit from Chapter 11, the debtor's financial performance hasn't kept pace with the projections set forth in its reorganization plan.
Corinne Ball, Heather Lennox, Lisa Laukitis, Steven Bennett, Todd S. Swatsler and Robert W. Hamilton at Jones Day are debtor counsel.
FTI Consulting Inc. is the company's financial adviser.
Thomas Moers Mayer, Philip Bentley and P. Bradley O'Neill at Kramer Levin Naftalis & Frankel LLP represent the official committee of unsecured creditors. Blackstone Advisory Partners LP is financial adviser for the committee.
Crowell & Moring LLP added Harvey Rishikof as a senior counsel from the National War College at the National Defense University in Washington. For other updates launch today's Movers & shakers slideshow.
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