Hostess Twinkies

Current Hostess management has no interest in keeping the company intact

A US bankruptcy judge has prevented the liquidation of Hostess Brands for the moment, suggesting a mediation process between the company and its Bakers Union. Both sides have agreed to the mediation.

Hostess went to Judge Robert Drain to, get this, receive permission to pay out executive bonuses to top officials in the company, even while they seek the pull the company into a liquidation that would eliminate the jobs of at least 18,500 workers.

Hostess Brands will ask a bankruptcy judge on Monday for approval to shut down the company and pay $1.75 million in executive bonuses.

Unions representing workers at the maker of Twinkies, Wonder Bread and Drake’s snacks are arguing against the bonuses. [...]

Under the plan, bonuses ranging from $7,400 to $130,500 will be paid to 19 executives. The company argues the bonuses are below market rates for such payments.

The US Trustee, a member of the Justice Department that advocates for creditors in bankruptcy cases, argued in court today that Hostess lawyers “have not demonstrated that the insider bonuses are permissible.”

The mediation process does not necessarily mean that liquidation will be avoided. Both sides will try to work out their differences with the assistance of a mediator (Judge Drain said he would serve in this capacity), as a precursor to liquidation and a probable sell-off of the brands. Pabst Brewing Company and the parent company of Tastykakes have already expressed interest.

The judge asked both sides not to take the leap on liquidation before entering into this process. “To me not to have gone through that step leaves a huge question mark over this case, which I think—I may be wrong—but I think will only be answered in litigation. And that’s no one’s desired outcome.”

I think this obviously is a blow to management. They made the decision to liquidate as a result of the bakers’ strike launched November 9. They would have made out well post-liquidation, having already secured the strategy of loading up Hostess with debt, removing the core assets and dropping the problems on somebody else. Now there’s at least a chance for an equitable solution that keeps the brand and its workers going. However, it’s beyond obvious that this current crop of management has no interest in keeping the company intact. So if anything, mediation is a band-aid.

Photo by CoastConFan under Creative Commons license