Hostess, union to give mediation one last try. Can Twinkies be saved? (+video)
A judge asks Twinkies maker Hostess and union lawyers to participate in mediation Tuesday to resolve their differences. If they fail, bankruptcy motions will resume Wednesday and 18,000 jobs will be lost.
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Tuesday’s mediation session is intended as a last-ditch attempt to reboot the company and save jobs, but it may be the case of too little, too late. Hostess has said that the bakery union has refused to negotiate with the same spirit of other labor organizations, such as the Teamsters, which agreed to wage cuts in exchange for about 25 percent of the company’s stock.Skip to next paragraph
In Pictures Twinkies and Wonder Bread Forever!
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On Monday, Hostess attorney Heather Lennox told Judge Drain that last week’s strike permanently crippled the company. “At this point … our customers know we’re going out of business. It would be very hard for us to recover from this damage … even if there were to be an agreement in the near term,” Ms. Lennox said.
Bakery union attorney Jeffrey Freund said the union has been “crystal clear” about its terms, which it reiterated “again and again and again and again.”
Dallas bankruptcy attorney Linda LaRue says it is more advantageous for Hostess to participate in the court-ordered mediation session because it will show that it did everything it could to save the company.
“It’s very difficult to have a Chapter 11 case succeed without a successful relationship with the unions and what’s what we’re seeing now. It would behoove them to [enter mediation] despite all the negotiations they’d done, if for nothing else to show a good faith effort. There are thousands of jobs at stake,” Ms. LaRue says.
Complicating matters is the Hostess request to pay senior management incentive bonuses of up to 75 percent of their annual pay to encourage them to continue on for the few months that are needed to wind down the company. In its court filing, the company said the bonuses would amount to as much as $1.75 million. Total costs to shut down the company are an estimated $17.6 million.
That request prompted US Trustee Tracy Hope Davis to file an objection on behalf of the US Justice Department with Judge Drain Monday, requesting that he convert the case to a Chapter 7 from a Chapter 11 because Hostess has “not demonstrated that the insider bonuses are permissible.”
Chapter 7 would involve the court appointing a trustee to the company who would be tasked with liquidating assets without any management involvement or interest in possible reorganization for future buyers.
Sam Stricklin, a partner in the financial restructuring group at Bracewell & Giuliani in Dallas, says Chapter 7 would create “chaos” for the company and its creditors.
“There are less draconian ways to handle things if the concerns are management is being paid too much – the court can shave all of that down,” Mr. Stricklin says. Under Chapter 7, “you’re basically using a nuclear weapon when a pistol would do the trick.”
IN PICTURES: Twinkies and Wonder Bread Forever!