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Hostess: Our chances of exiting Chapter 11 will ‘evaporate’ if union members strike

By Elaine WATSON , 25-Oct-2012

Twinkies-maker Hostess Brands says it hopes it will be able to exit Chapter 11 in a few months, but has warned employees in the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) that strike action will force it to liquidate the company.

Hostess - which recently got approval from the bankruptcy court to force members of the BCTGM to accept a collective bargaining agreement they had overwhelmingly rejected - says union members have the right to strike, but that by doing so they will jeopardize the future of the company.

In a letter to employees, chief executive Gregory Rayburn said the likelihood of making it out of Chapter 11 would “evaporate” if the BCTGM-represented employees strike.

I am asking everyone to make the only rational choice

Gregory Rayburn joined Hostess in February, 2012 to oversee its reorganization under Chapter 11

If there is a strike, he said, “Plants, depots and retail stores will be closed almost immediately; except for a small team to close and prepare the facilities for sale, all employees will be terminated.

“Terminated employees will no longer receive paychecks or health and welfare benefits after their date of termination, and they may not be eligible immediately for unemployment benefits; some of our facilities may close forever; purchasers of our brands may well decide to make them in their own facilities; local markets will suddenly be flooded with former Hostess employees competing for jobs.”

He added: “I am asking everyone… to make the only rational choice: stay on the job and join your co-workers to try to save Hostess. If you want to leave, please do so without forcing your colleagues to lose their jobs. At this point, the choice is truly yours.”

The re-organization plan does not involve layoffs

A spokesman told FoodNavigator-USA that the disclosure statement filed with the re-organization plan earlier this month would be reviewed on November 29.

This included information on labor agreements, the treatment of claims and interests
and the business plan, he said.

The five-year collective bargaining agreement that has been approved by the Teamsters and other unions representing Hostess employees, is being phased in “on a rolling basis” over 40 days, he said.

While the company’s contribution to health plans and pension schemes will drop significantly under the deal, and wages will immediately drop 8% for everyone in year one, pay will rise again gradually over the next four years.

Meanwhile, union members also stand to get a 25% equity stake in the company, two seats on the board and one seat on the executive compensation committee if the firm emerges from Chapter 11, he said.

Asked about possible layoffs, he said: “The re-organization plan does not involve layoffs. What we have said is that we need to need to sell some assets and we have been clear from the start that the first choice will be to sell the Merita brand [which is produced from five bakeries in the south east].”

It would be up to the new owner to decide which Merita employees to retain, he said.

No white knight

Hostess filed for Chapter 11 bankruptcy protection in mid-January, citing pension and medical benefit obligations, restrictive work rules and tough trading conditions, and has been pursuing new collective bargaining agreements with union employees ever since.

While the Teamsters union, which represents several thousand Hostess’ employees, accepted the company’s latest collective bargaining offer, the BCTGM rejected it by a 92% margin, dismissing it as “outrageously unfair”.

But Hostess said it was not willing to put another offer on the table and filed a motion with the bankruptcy court in White Plains, New York, to impose the same changes ratified by the Teamsters on employees represented by the BCTGM.

One of the key elements of the trial was whether a third party had made an eleventh hour offer to acquire the entire company.

However, no 'white knight' had emerged, it said. "There are no viable bidders waiting to purchase the entire company.”

Texas-based Hostess Brands employs about 18,500 employees and operates 36 bakeries, 565 distribution centers and 570 bakery outlet stores in the US.

The BCTGM represents 6,600 Hostess employees and is Hostess's second largest union behind the Teamsters.

The union did not respond to requests for comment.

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