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Hostess gets green light to impose pay-cutting deal on union; insists 'there are no viable bidders'

By Elaine WATSON , 04-Oct-2012
Last updated on 04-Oct-2012 at 19:52 GMT

Twinkies maker Hostess Brands has got the green light from the bankruptcy court to force members of the union representing a big chunk of its staff to accept a deal they have overwhelmingly rejected.

Hostess filed for Chapter 11 bankruptcy protection in 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, which will cut wages by 8% and reduce benefits, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (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.

The deal, which was approved yesterday by U.S. Bankruptcy Judge Robert D. Drain, was the only way Hostess could “avoid liquidation and successfully emerge from Chapter 11”, a spokesman told FoodNavigator-USA.

'There are no viable bidders'

In a statement, the company said Drain had "approved Hostess Brands’ motion to impose changes to collective bargaining agreements for the BCTGM. It also granted the Company’s motion to impose virtually identical changes on five additional smaller unions, though only two had contested the motion.

"Drain approved motions that allow Hostess to impose changes to both those BCTGM collective bargaining agreements that are still in effect and to another 18 that expired earlier this year.  The approval for the 18 expired agreements was granted on an interim basis to allow both parties to continue bargaining at a later date."

Only recent offer came from investment bank whose 'offer was far from viable'

One of the key factors in Drain's decision was whether a third party had made an eleventh hour offer to acquire the entire company, claimed Hostess. 

Which unions have ratified Hostess's offer?

Offering an update of the status of union votes on the Hostess proposal to modify collective bargaining agreements, Hostess said:

The following unions have ratified the offer: The International Brotherhood of Teamsters; United Automobile, Aerospace and Agricultural Implement Workers of America; and the United Steelworkers.
The following are considering the offer: The Office & Professional Employees International Union; Retail, Wholesale and Department Store Union; and the United Food and Commercial Workers Union.
The following did not contest the offer: The Glass, Molders, Pottery, Plastics & Allied Workers International Union; International Brotherhood of Firemen and Oilers; and the United Brotherhood of Carpenters and Joiners of America.
The following rejected the offer and are subject to the ruling: The Bakery, Confectionery, Tobacco Workers & Grain Millers International Union (BCTGM); the International Association of Machinists and Aerospace Workers; and the International Union of Operating Engineers & Service Employees...

"Were this the case, it would have had a dramatic effect on the case by providing an alternative to the current exit strategy, whereby the Company’s existing lenders have agreed to fund the Company’s exit from Chapter 11 in exchange to concessions from all employees."

However, no 'white knight' had emerged, it insisted.

"Testimony at today’s trial clearly refuted this claim and confirmed the Company’s assertion that there are no viable bidders waiting to purchase the entire company.

"Hostess CEO and Chairman Gregory F. Rayburn and Josh Scherer of Perella Weinberg, the Company’s financial adviser, testified that the only recent offer came from an investment bank that had no financing and whose offer was far from viable, in part because it called for the dissolution of union drivers."

Judge: There is no third party alternative

Drain agreed:  “The evidence is crystal clear from the testimony of Mr. Rayburn and Mr. Scherer that there is no third party alternative before the debtors at this time.”

The, BCTGM union, which represents 6,600 Hostess employees and is Hostess's second largest union behind the Teamsters, was unavailable for comment as this article went to press.

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

 More to follow...

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