Hostess, Maker of Twinkies, Ding Dongs, Files for Bankruptcy

on Wednesday, January 11, 2012

Hostess, Maker of Twinkies, Ding Dongs, Files for BankruptcyThe world of processed foods is in mourning as Hostess Brands, the maker of Twinkies and Ding Dongs, filed for bankruptcy protection.

Hostess filed for bankruptcy protection on Wednesday after failing to implement business cost reduction initiatives. The company had struggled to rework contracts with its labor force, and rising food prices had further squeezed operating margins. The company, which has assets of approximately $1 billion, also carries a debt load of more than $1.4 billion.

The company has more than 100,000 creditors, with labor unions and pension funds representing company employees serving as its largest segment of unsecured creditors. The Texas-based food manufacturer completed a restructuring three years ago, when Ripplewood Holdings and a group of lenders took control of the company, formerly known as Interstate Bakeries Corp.

Much to the delight of junk food addicts the world over, the company will continue to "operate business as normal" as it moves through bankruptcy court, according to Hostess spokesperson Erik Halvorson. That means consumers will still be able to purchase Drake's Devil Dogs, Nature's Pride breads, Wonder Bread and their beloved Twinkies, among other delicious – though perhaps unhealthful – items.

Unlike many of its competitors, Hostess has had to contend with a largely unionized workforce. Though investors had urged company executives to overhaul spend management and procurement services in an effort to hit cost reduction goals, the hefty costs associated with employees' pension funds and benefits overwhelmed the reorganized company.

The current cost structure at Hostess "is not competitive, primarily due to legacy pension and medical benefit obligations and restrictive work rules," Hostess said in a statement. Hostess chief executive Brian Driscoll added that the company hopes to negotiate with its labor force to bring about a resolution.

"We remain hopeful that we can reach an agreement that will allow us to amend our labor contracts so that we can emerge from Chapter 11 as a highly competitive company that provides secure jobs for our employees," Driscoll asserted.

The Wall Street Journal reports Hostess received $75 million in financing commitment from a group of lenders, which will enable it to continue churning out its food offerings. Unlike firms struggling to alter supplier contract negotiations, Hostess' woes mirror those of U.S.-based automakers, who witnessed their profits plummet as they doled out a substantial amount of revenue to cover health insurance, pension and other labor costs.

Hostess currently employs a workforce of roughly 19,000 full-time and part-time employees, 83 percent of which are union members. The vast majority of its workers belong to one of two unions, according to the WSJ. The two most represented unions at the foodmaker are the International Brotherhood of Teamsters and the Bakery, Confectionery, Tobacco Workers & Grain Millers International Union.

Before its last bankruptcy filing in September 2004, the company had pursued growth through an aggressive system of mergers and acquisitions. The company has kept prices on its myriad food items relatively high, which stymied its ability to offset higher food and fuel prices onto its customers.

The company, which in 2011 received loans from Silver Point Capital and Monarch Alternative Capital totaling more than $20 million, has a sweeping supply chain and logistics network. In total, Hostess operates 36 bakeries, 565 distribution centers, 570 bakery outlet shops and roughly 5,500 delivery routes.

Hostess is believed to have courted potential buyers in the lead up to its bankruptcy protection filing, according to CNN. Such possible buyers included Kraft Foods, which manufactures a number of food products, Campbell Soup and Pepperidge Farm.



 

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