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Hostess Brands receives court approval to close operations

November 23rd, 2012

Hostess Brands, a producer of bakery products in the US, has received approval from the US Bankruptcy Court in New York to close its business and sell its assets, a move which will lead to a loss of up to 18,500 jobs.

Judge Robert Drain authorised the liquidation process after Hostess Brands and the Bakery, Confectionary, Tobacco and Grain Millers Union (BCTGM) were unable to resolve their differences during a mediation session on 20 November, which was aimed at saving the company.

While 18,500 employees will lose their jobs eventually, the company plans to retain 3,200 of them for assistance in the initial phase of the liquidation.

The liquidation, which is expected to be completed in one year, will lead to the closure of 33 bakeries, 565 distribution centres, approximately 5,500 delivery routes and 570 bakery outlets across the US.

The company is planning to sell its Hostess, Drakes and Dolly Madison brands, which make products such as Twinkies, CupCakes and Ding Dongs, and its bread brands Wonder, Nature’s Pride and Home Pride, among others.

Potential bidders for the brands may include Flower Foods, private equity firm Metropoulos, and Mexican food company Grupo Bimbo.

In November, BCTGM began a nationwide strike after rejecting the company’s contract offer with lowered wages and benefits.

On 12 November, Hostess Brands closed three bakeries, blaming work stoppage on the strike, and warned that it would be forced to liquidate if employees did not return to work to resume normal operations.

The company announced on 16 November that it was seeking permission from the bankruptcy court to close its business and sell assets, stating that an insufficient number of employees had returned to work, which would not enable restoration of normal operations.

Hostess Brands, which has been affected by increasing debts, soaring labour costs and the changing tastes of consumers, filed for bankruptcy in January 2012 for the second time in its history, declaring assets of $982m and debt of $1.43bn.

Following this, the company’s management proposed changes to lower wages, citing that the business was unprofitable under its current cost structure.

This was meant to attract new capital injection in order to emerge from Chapter 11 bankruptcy.

Source: Food Processor Technology

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