Hostess mediation fails, liquidation likely

Posted at 6:37 AM, Nov 21, 2012

By James O’Toole

NEW YORK (CNNMoney) — Hostess Brands said Tuesday evening that a last-ditch mediation session with its bakers’ union over a new contract imposed in bankruptcy court had failed, bringing the company closer to liquidation.

Hostess said in a brief statement that the mediation session “was unsuccessful,” and that it had no further comment ahead of a hearing scheduled for Wednesday morning in bankruptcy court, where it has requested permission to liquidate.

Jeff Freund, a lawyer for the bakers’ union, declined to comment, citing mediation ground rules.

Last Friday, management announced a shutdown of Hostess. They appeared before U.S. Bankruptcy Judge Robert Drain on Monday afternoon seeking approval to liquidate and sell off the company’s assets. But Drain said he wanted the parties to try one last time to reach agreement, serving as the mediator at Tuesday’s session.

Drain said he was motivated by the prospect of saving the roughly 18,500 jobs at Hostess, maker of Twinkies and Wonder Bread.

Only one day of talks was scheduled. Hostess CEO Greg Rayburn said Monday that the company would need an answer from the bakers’ union on whether it would accept the new contract by the end of the day Tuesday.

With Tuesday’s talks having failed, liquidation and the loss of Hostess’ jobs appeared likely.

The bakers’ union, which represents 5,000 of the 18,500 employees, went on strike on Nov. 9 to protest a new contract that imposed wage and benefit cuts. Other unions, including the International Brotherhood of Teamsters, had accepted the deal.

If the company goes into liquidation, its brands and recipes will be sold off to raise funds to pay creditors.

On Monday, private equity firm Sun Capital Partners told Fortune that it wants to buy Hostess as a going concern. It would reopen the shuttered factories, keeping the Hostess workers and their unions.

But others vying for the rights to Hostess products could simply produce them at their own facilities, leaving former Hostess employees out of jobs.