Reuters is reporting that Hostess Brands Inc is going to pursue going out of business after its last-minute discussions with one of its unions collapsed on Tuesday night. The union on strike is the bakers union and the two parties were forced into mediation by Judge Robert Drain, from New York Bankruptcy Court. The attempt was to prevent the company from going out of business, which would save 18,500 jobs in the process. Drain was the mediator for the talks.
Hostess is going to ask Drain to approve its plan for a piece-meal liquidation of the company, which is 82-years-old. Hostess claims that its daily operations were crippled by the strike of the bakers and that closing up shop is the best way to hold onto its cash, of which there is not much left.
The bakers union that is on strike is the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. The strike began on November 9. Hostess’ largest union, the Teamsters, accepted an eight percent cut in pay in order to help save the company. The general secretary of the Teamsters, Ken Hall, said the following in a statement:
“This is a tragic outcome and our thoughts and prayers go out to all Teamster Hostess members and all Hostess employees.”
According to reports, Mexico’s Grupo Bimbo and Flowers Foods are rumored to be in the running to purchase the company in part or in whole. Sun Capital Partners, a private equity firm, has also been rumored to have interest in Hostess along with Metropolous & Co.
In the United States, Hostess operates 33 bakeries, 5,500 delivery routes, 553 distribution centers and 527 bakery outlet stores. Even though bakery operations ceased with the strike, deliveries were still occurring because of already-made products. Hostess blames pension costs and union wages for problems with its unprofitability. Gregory Rayburn, the Chief Executive of Hostess, said that the labor contracts have prevented possible bidders from entering discussions with Hostess.