hostess

Twinkie's last stand: It's up to a mediator

Nov. 19, 2012 at 11:05 AM ET

Twinkie the Kid’s ride into the sunset hit a hurdle Monday when Hostess Brands, unions and lenders agreed to mediation to try to save the company, and its spongy, yellow cake, from liquidation. 

The decision staves off, for a couple of days at least, Hostess’ plans to shut down its 33 factories and lay off 18,500 workers after an acrimonious labor dispute that could lead to the end of the 82-year-old company and its well-known brands such as Twinkies, Ho-Hos, Sno-Balls and Wonder bread. 

During the hearing, U.S. Bankruptcy Judge Robert Drain urged the parties to come to an agreement through mediation rather than through a public, and costly, hearing. The court called a short recess while the lawyer for the baker's union phoned his client to see if the union would agree to a mediation process tomorrow.

After the recess, the sides agreed to a mediation session Tuesday at 1 p.m. ET to try to work things out. If they can't resolve it, and come to an understanding of the underlying motives behind the worker strike that the company said crippled its business, the bankruptcy hearing will resume Wednesday at 11 a.m ET.

The sides will probably come to an agreement  on Tuesday, John Pottow, a bankruptcy law professor at the University of Michigan, told TODAY. The biggest sign, he said, is that the Teamsters were on board.

"The Teamsters aren't pussycats," said Pottow. "If they're saying 'this is as good as it gets,' that's a pretty strong signal to me."

Wait a moment, so they were playing poker with our childhood memories all along?

"The bakery union probably thought management was bluffing," Pottow said. After Hostess filed for permission to liquidate Friday, it became clear they weren't.

Court filings show that the company is asking for permission to pay $1.75 million in retention bonuses to 19 different managers as an incentive for sticking around during the liquidation process. Hostess Brands CEO Gregory Rayburn has publicly blamed the unions for the company's demise.

The U.S. trustee, Hope Davis, an official appointed by the Justice Department to protect the interest of creditors, objected to this idea, filing a motion this morning which argued that Hostess officials "have failed to demonstrate that the proposed bonuses are true incentive bonuses and not disguised retention payments."

Davis also moved to convert the bankruptcy from a chapter 11 to a chapter 7. That would take control of the winddown proceedings away from Hostess and into the hands of a court-appointed trustee.

In their joinder filed today, the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union said that "blaming the BCTGM for the Company’s liquidation is no more credible than blaming an isolated gust of wind for blowing over a tree, when it was the tree’s shallow, rotted root structure that was actually responsible."

But kids, both young and old, don't care about the blame game. They want to know whether they'll still be able to find their favorite creme-filled yellow cake treat on the shelves.

The decades-old brand is legendary in consumers' minds and evokes strong feelings of nostalgia in every bite. Some still remember the brand's signature character "Twinkie The Kid" lassoing it up on early television commercials and proclaiming "Big Delight in Every Bite!" The foodstuff has even entered the legal canon. "The Twinkie Defense" was famously, and successfully, used to argue that a suspect on trial for murder suffered from depression and that his high-sugar diet was a symptom of this mental state.

In advance of the interim hearing, Hostess Brands spokesman Tom Becker told TODAY he "wasn't going to comment on what could happen" or speculate on the proceeding's outcome.

While today's results are likely to be minimal, in the coming months several different scenarios could play out, depending on who the buyer is, or if there is a buyer at all.

"There's a lot of Goodwill that comes with the brand name," said Pottow, "A lot of companies could buy the name and recipe for Twinkies and make them." They wouldn't have to make them at the Twinkies factories either. They could make them in new facilities not burdened under old worker agreements that, for instance, required employing separate drivers for two different kinds of Hostess products rather than trucking them together.

Twinkies get absorbed by a big American conglomerate

Some of the likely suitors include ConAgra, Tastycakes maker Flowers Food, or McKeeFoods, makers of Little Debbie. These companies would likely seek to attach the Twinkies to a more efficient delivery system. For instance, does it really make sense to deliver Twinkies in their own special Twinkies trucks?

"Twinkie The Kid" trades his cowboy hat for a sombrero...

A Mexican firm, like Grupo Bimbo, which Forbes reports put in a bid for Hostess several years ago, could move production south of the border. A South American company could get access to lower sugar prices and a cheaper non-unionized workforce. Or, they could keep product in the US, but made in a non-unionized factory.

...or develops a Canadian accent.

A Canadian company called Saputo has the Canadian rights to Hostess brand products. They're not affected at all by the Hostess liquidation and they could conceivably arrange it to sell Twinkies in America. 

Twinkies dies

Pure speculation: No one buys the Twinkies recipe. Fans are forced to make their own at home. Prices for unopened boxes of Twinkies skyrocket on eBay. An "Occupy Twinkies" movement launches to build an unauthorized Twinkies knockoff factory with no leaders and online-only sales... and is surprisingly profitable.

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