No more Twinkies? Others could buy Hostess' brands

Matt Krantz and Jeff Swiatek, USA TODAY | USATODAY

Show Caption Hide Caption Hostess ceases operations, 18,500 out of work Hostess, the maker of Twinkies and Wonder Bread, is going out of business, closing plants, laying off its 18,500 workers and putting its brands up for sale. (Nov. 16)

Hostess Brands filed for Chapter 11 bankruptcy protection in January

Strike has affected production at about a dozen of Hostess' 33 plants

A shutdown would result in the loss of about 18,000 jobs

INDIANAPOLIS -- News that Hostess Brands is closing shop is creating a host of business questions, including the fate of iconic brands such as Twinkies and Wonder Bread.

The company, which had been in and out of bankruptcy restructuring, was already struggling from a high cost structure and sluggish consumer demand for its products. Its fate was sealed by a confluence of negative events including rising commodity costs and competitive pressures, says Erin Lash, analyst at Morningstar.

The company had warned it would file a motion in U.S. Bankruptcy Court to shut operations if enough workers didn't end a weeklong strike by 5 p.m. ET Thursday. On Friday, it followed through on that threat.

Now Twinkie fans and business analysts are trying to figure out what will happen to the company's brands. Some could be attract a buyer. The snack foods category especially is of interest since it's one of the faster growing spaces in packaged goods, Lash says.

Among the possibilities, according to Lash:

• Kellogg recently bought the Pringles brand of salty snacks, and Pringles is now Kellogg's No. 2 brand.

• Mondelez International, spun off recently from Kraft, is a large snack producer, although it has seemed more interested in expanding outside the U.S.

• Campbell Soup also has a large snack business, but it's been focused on healthier foods and rebuilding its soup business, Lash says.

•Grupo Bimbo, whose brands include Arnold and Sara Lee and Entenmann's, might also be a candidate due to its large presence in the supermarket bread aisle.

At this point, investors can only guess what the fate of Hostess will be. "It's hard to say who will buy it," Lash says. "But snacks overall is an area many companies are paying attention to."

Hostess, whose brands also include Drake's, Nature's Pride and Home Pride, said early Friday that it filed a motion in Bankruptcy Court seeking permission to close and sell its assets.

The company says it has suspended bakery operations, but deliveries will continue and Hostess retail stores will stay open to sell products already in the pipeline.

Hostess workers remained on picket lines across the country Thursday night, refusing a company ultimatum to return to work or face the liquidation of the national baker.

The shutdown will result in the loss of about 18,000 jobs.

"Many people have worked incredibly long and hard to keep this from happening, but now Hostess Brands has no other alternative than to begin the process of winding down and preparing for the sale of our iconic brands," CEO Gregory Rayburn said in a letter to employees posted on the company website.

He added that all employees will eventually lose their jobs, "some sooner than others."

Privately held Hostess filed for Chapter 11 protection in January, its second trip through bankruptcy court in less than a decade. The company cited increasing pension and medical costs for employees as one of the drivers behind its latest filing. Hostess contends workers must make concessions for it to exit bankruptcy and improve its financial position.

The company, founded in 1930, is fighting battles beyond labor costs, however. Competition is increasing in the snack market, while Americans are increasingly conscious about healthful eating. Hostess also makes Dolly Madison, Drake's and Nature's Pride snacks.

The Teamsters union is urging the bakers union to hold a secret ballot on whether to continue striking. Citing its financial experts who had access to the company's books, the Teamsters say that Hostess' warning of liquidation is "not an empty threat or a negotiating tactic" but a certain outcome if workers keep striking.

Hostess, based in Irving, Texas, already has reached a contract agreement while in bankruptcy with its largest union, the International Brotherhood of Teamsters. But thousands of members in its second biggest union went on strike late last week after rejecting a contract offer that cut wages and benefits.

The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union said the company stopped contributing to workers' pensions last year, and the union wants pension benefits restored.

Production at about a dozen of the company's 33 plants has been seriously affected by the strike, said Lance Ignon, a Hostess spokesman.

"Do it, shut it down," a woman yelled at 5 p.m. Thursday from the picket line formed at the company's Indianapolis plant.

As many as 45 people in the picket line chanted, "No pension, no deal," as they walked a tight circle in the growing cold and gathering darkness.

Their picketing drew frequent supportive honks from passing drivers.

Wedrick Hollingsworth, business agent for Local 372-B of the bakers union, said union members took wage and benefit concessions four years ago and are unwilling to accept further wage cuts and reductions in health and pension benefits sought by the company. "It's just too much for these employees to accept. We gave concessions four years ago."

John Smith, a wrapper operator at the plant who has worked for Hostess for 22 years, said he's at peace with his decision to join the strikers. "You have to take a stand for what you believe in. They gave us a take-it-or-leave-it deal. We can't take the financial abuse."

Hollingsworth, warmly dressed in coveralls and a hooded sweatshirt, said union members would man the picket line outside the plant round-the-clock. Workers erected a tent and were burning wood fires in two grills to help stay warm.

Several private security officers watched the strikers from the gate of the plant, which normally runs its ovens 24 hours a day turning out bread, buns, mini-doughnuts and muffins.

The union business agent said he'd prefer to see Hostess sold.

"It's definitely got to be better than what this company's trying to implement. There are other bakeries out there looking to purchase some of these locations. These employees have the opportunity to go back in (under a new owner)."

Jeff Swiatek reports for The Indianapolis Star; Contributing: The Associated Press