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After years of struggling to reorganize financially, Hostess Brands, Inc. decided to liquidate the company on Friday resulting in the loss of at least 18,500 jobs.
Hostess requested permission from Federal Bankruptcy court to shut down its operations after they were unable to negotiate with strikers angry over a new contract.
Protests implemented by the 5,000 Hostess employees represented by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union impacted 67% of Hostess’s plants.
On November 9,the Bakery began a work stoppage, which ultimately made it impossible for Irving, Tex. Company to produce the company’s baked goods, said Chief Executive Gregory Rayburn.
The 82-year-old company is known for it’s iconic snacks such as Twinkies, Drake’s Devil Dogs, and Wonder Bread.
Although their products are seemingly popular, Hostess hadn’t been doing well financially, filing for Chapter 11 bankruptcy in 2004 and again in January.
A bankruptcy judge approved a new five-year contract that would cut wages, commissions, pension contributions, and health-care benefits for employees. Without these cutbacks the company would have be unable to survive.
The Bakers union refused to accept the contract. Union President Frank Hurt called the contract “untenable.”
Unable to negotiate with a national strike coordinated by the second-largest union in the country, Hostess decided to close the company and sell its assets.
“We deeply regret the necessity of today’s decision, but we don’t have the financial resources to weather an extended nationwide strike,” Rayburn announced on Friday.
All 33 bakeries, 565 distribution centers, and 570 outlet stores the company owns will be shut down. The company’s plan is to rapidly dismiss its employees and to focus on selling all of its assets to the highest bidder.
The company produced about 30 different brands. It’s unlikely that all of the products will sell, but it’s predicted that other companies will pay a significant amount of money for the most famous Hostess treats.
In an interview with Reuters, someone that wished to remain anonymous because they belong to a company planning to bid to be the liquidator said, “Can you imagine what Twinkies will go for? Jiminy! And Wonder Bread? There are 100-year-old brands. They have to be worth a lot.”
Hostess was losing up to $7.5 million to $9.5 million in losses because of the union strike but liquidating the company will be costly as well.
The process is predicted to take approximately one year.
The estimated cost for the company’s entire wind-down process is $41.3 million within the first 13 weeks. $77 million will be generated within the first ten weeks from inventory and liquidation of the company’s accounts receivables.
With added requests for bonuses and compensations, the total cost for the liquidation of the Hostess Brands could reach up to $6.11 million dollars.
Part of the cost will be covered by the $75 million bankruptcy loan Hostess received.
The company lost a significant amount of money because of employee protests but that isn’t the only problem Hostess had. Rayburn said there were a variety of factors that contributed to the company’s failures.
“I think there’s blame to go around everywhere. There’s almost nowhere you can look that didn’t play a role in the company ending up in this position,” he said.
When exactly the sales of Hostess’s assets will occur is uncertain but the company is hoping to start liquidating on Tuesday.
Discounter or big-box stores will most likely receive the remainder of Hostess’s inventory in bulk.