Bankruptcy court grants OK for Hostess shutdown

A 'closed permanently' sign joins a Twinkie The Kid poster on the Wonder Hostess Bakery Outlet store in Victorville, Calif. The store closed Saturday.

NEW YORK — Hostess Brands Inc. won permission from a U.S. bankruptcy judge on Wednesday to begin shutting down and expressed optimism it will find new homes for many of its iconic brands, which include Twinkies and Wonder Bread.

U.S. Bankruptcy Judge Robert Drain authorized current management, led by restructuring specialist Gregory Rayburn, to immediately begin efforts to wind down the 82-year-old company.

The process is expected to take one year.

“It appears clear to me that the debtors have taken the right course in seeking to implement the wind-down plan as promptly as possible,” Judge Drain said during a four-hour hearing.

The judge authorized Hostess to begin the liquidation process one day after his last-ditch mediation effort between the Texas-based company and its striking bakers’ union broke down. Judge Drain said details of those talks are confidential.

Mr. Rayburn told the judge that about 15,000 workers will lose their jobs immediately. Most of the remaining 3,200 will no longer be employed after about four months.

Hostess said its Northwood plant had 158 employees. Northwood city officials said tax records from August showed total Hostess employment of 184 in the city. Hostess also operated Brown’s Bakery in Defiance; city officials there said it had about 190 employees.

Bill Lichtenwald, president of Teamsters Local 20 in Toledo, said 80 of its members have lost their jobs. Many of those jobs are in Northwood, and some are in Fremont, he said.

“It’s sad,” he said. “I wasn’t expecting anything good coming out of the mediation.”

Judge Drain’s motion spells the almost certain end of Hostess, which survived the Great Depression, numerous wars, and countless low-carb diets.

But the company, which also makes Ho Hos and Ding Dongs, struggled for more than a decade with the public’s increasing fondness for lower-calorie, less-processed snacks.

During Wednesday’s hearing, company executives and advisers espoused a simple message: Expedited sales of the failed baked goods-maker’s brands will raise the maximum amount of money possible. And letting Hostess begin shutting its doors for good sooner would be kinder to employees.

Advisers sounded confident that the liquidation process could yield big recoveries for creditors.

“Since we filed motion, we have received a flood of inquiries and think there can be a healthy competition,” said Heather Lennox, a lawyer for the company.

“We are trying to be as sensitive as we can possibly be under the circumstances to the human cost,” Ms. Lennox told the judge.

The union, the Bakery, Confectionery, Tobacco, and Grain Millers Union, has complained that it should not be forced into new wage and benefit cuts, on top of earlier give-backs, while top executives rewarded themselves with higher pay, and that it was “well aware” of the potential consequences of that stance.

Hostess has about 36 plants, including three it decided to close after the strike began, as well as 565 distribution centers and 570 bakery outlet stores.

Mr. Rayburn said he was disappointed that the mediation failed and that he plans to move “extremely fast” to sell Hostess’ assets.

Joshua Scherer, a partner at Perella Weinberg Partners, which is advising Hostess, said regional bakeries, national rivals, private equity firms, and others have expressed interest in various brands.

Mr. Scherer said Hostess could be worth $2.3 billion to $2.4 billion in a normal bankruptcy, an amount equal to its annual revenue. It also has about $900 million of secured debt and faces up to about $150 million of administrative claims.

At Wednesday’s hearing, Judge Drain rejected a request to convert Hostess’ Chapter 11 case to a Chapter 7 liquidation and substitute a trustee for management to conduct asset sales.

He called that proposal a “disaster for all concerned.”

Many of the 3,200 remaining workers will help shut Hostess’ properties and prepare them for sale.

Hostess expects to need about 200 employees by late March.