Hostess Update: Judge gives final approval for wind-down bankruptcy plans

by | Nov 29, 2012

Hostess Brands Inc. attained final approval for its wind-down plans in Bankruptcy court, setting the stage for new owners to take over.

The company says it’s in talks with more than 110 parties interested in buying its brands including Twinkies, Ding Dongs and Ho Hos. The companies include five national retailers such as supermarkets.

Joshua Scherer of Perella Weinberg Partners said the interested companies are expected to spend substantial sums of money, adding that six of them had hired investment banks to help in the process.

The wind-down information comes as Hostess received approval to give its top executives bonuses totaling $1.8 million. This was in exchange for certain budget goals to bring down costs during the liquidation. Hostess said the incentive pay is necessary to keep corporate officers and high-level managers during the wind-down process, which could take about a year.

Two of those executives would be eligible for additional rewards depending on how efficiently they carry out the liquidation. The compensation would be on top of their regular pay.

Also, these bonuses do not include pay for CEO Gregory Rayburn, who was brought on as a restructuring expert earlier this year. Rayburn is being paid $125,000 a month.

Meantime, 18,000 Hostess employees are losing their jobs due to the bankruptcy.

Hostess was given interim approval for its wind-down last week. This gave the company legal protection to immediately fire 15,000 union workers. Hostess said the firings were necessary to free up workers to apply for unemployment benefits. About 3,200 employees are being retained to help in winding-down operations, including 237 employees at the corporate level.

The bakers union, Hostess’ second-largest union, has asked the judge to appoint an independent trustee to oversee the liquidation, saying that the current management has been unsuccessful in its attempts to reorganize.

The company’s demise comes after years of management turmoil and turnover. Workers say the company failed to invest in updating its products. In January, Hostess filed for its second Chapter 11 bankruptcy in less than a decade, citing steep costs associated with its unionized workforce.

Although Hostess was able to reach a new contract agreement with its largest union, the Teamsters, the bakers union rejected the terms and went on strike Nov. 9. A week later, Hostess announced its plans to liquidate, saying the strike crippled its ability to maintain normal production.

In court on Thursday, a Hostess attorney said the company is no longer able to pay retiree benefits, which add up to about $1.1 million a month. The company stopped contributing to its union pension plans more than a year ago.

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