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While it came as a sudden shock to Twinkie lovers, Hostess Brands was crumbling long before the 82-year-old bakery closed up shop.
Loaded down with $1.4 billion of liabilities, the company said yesterday it would go out of business after failing to reach an agreement with its workers. A week-long strike by its bakers union was the final blow.
Despite two trips through bankruptcy court, creditors, owners and unions could never agree on how to restructure the company. As a result, Hostess faced a disastrous mix: huge debt, rising labor costs and too little investment.
While there was plenty of finger-pointing yesterday, several parties took a bite out of the company along the way.
After private equity-firm Ripplewood Holdings bought it out of bankruptcy in 2009, Hostess wasn’t able to invest in factories as it struggled with debt, management turmoil and union tensions.
Ripplewood bought Hostess on the premise that it would acquire a rival — a deal that never happened. Instead, Sara Lee’s bread business was bought by Mexico’s Grupo Bimbo.
Meanwhile, Hostess failed to diversify its products as carb-conscious Americans shunned white bread and cream-filled snack cakes.
“The fatal flaw is they continued to be mainly white bread when the whole category shifted to variety,” a competitor said.
When Hostess landed in Chapter 11 for the second time in January, wryly known as “Chapter 22,” creditors were not willing to slash its debt.
To remain viable, Hostess had to demand concessions from its workers, leading to a walkout by its bakers union.
Hostess management also misjudged its unions. CEO Gregory Rayburn assumed that the bakers union would fall in line once it had a deal with the Teamsters union.
Hostess said it “will be unable to achieve a stand-alone reorganization of their businesses and, therefore, are pursuing the orderly wind-down.” It is now pursuing a sale of its brands.
There will be buyers for the snack brands, including Drake’s, Hostess, and Twinkies, bankers said. Regulators will likely stop Grupo Bimbo, the world’s largest baker, from acquiring all the brands.
Campbell Soup has interest and would deliver Hostess snack products through its own independent drivers, a source said.
However, there will likely be little interest in Wonder Bread. “Someone will buy Wonder, but it will be a much less significant brand in 12 months,” a source said.
Susan Brady, a 23-year Philadelphia baker, said when she voted in September to give The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union the authority to strike, she thought it would lead to a better deal — not liquidation.
“I agreed with the vote at the time because I was surrounded by other union members,” she said.