Hostess and Bakers Union Meet in Mediation

In an effort to save over 18,000 jobs, bankruptcy judge Robert Drain decided to delay the bid by Hostess Brands Inc. to close its business and sell its factories, brands and other assets. Drain told both the company and its union to join him Tuesday for mediation where he will work towards brokering a new contract between the two parties. If the mediation does not succeed, Hostess will be allowed to return to court on Wednesday to close itself down, according to the Wall Street Journal.

The company originally asked Drain for permission to liquidate, claiming that the baker’s unions strike left it unable to produce its products.

“My desire to do this is prompted primarily by the potential loss of over 18,000 jobs,” Drain said during the hearing, which took place in federal bankruptcy court in White Plains, N.Y. Drain also said that his “belief that there is a possibility to resolve this matter notwithstanding the losses that [Hostess has incurred] over the last week or so and the difficulty of reorganizing this company.”

Gregory Rayburn, the chief executive for Hostess, said, “We’ll take all the help we can get.”

The issue at hand between the union and Hostess began earlier in 2012 when the company sought wage and pension cuts. The other union working with Hostess, the Teamsters, agreed to the deal but the baker’s union balked at the offer. Under the Bankruptcy Code, Hostess tried to impose labor terms on the baker’s union. Drain gave Hostess permission in October after the bakers did not participate in court proceedings.

The contract, imposed for five years, had an eight percent cut in wages in the first year and pension plan changes. The bakers started their strike on November 9.

“The bakers union did not object to the relief that was sought. I want to repeat that,” Drain said in court on Monday. He described the bakers’ decision to stay quiet as Hostess began imposing labor cost cuts was “somewhat unusual, to say the least, and perhaps illogical.”

Hostess filed for bankruptcy in January of 2012, reporting that it was $1.3 billion in debt and reported that it had $981.6 million in assets as of December 10, 2011. Hostess is being represented by the law firm of Jones Day. A lawyer on the case, Heather Lennox, said, “At this point, your honor, our customers know we’re going out of business. It would be very hard for us to recover from this damage, your honor, even if there were to be an agreement in the near term.”

Some of the potential bidders for Hostess include Flowers Foods and Sun Capital, which owns the Friendly’s franchise.