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Hope for Twinkies as Hostess, union go to mediation

(Moneywatch) There may still be hope for consumers shut out of last week's great Twinkie binge: Hostess Brands and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union have agreed to mediation following some prodding by a Federal judge.

Last Friday morning Hostess announced it was planning to wind down operations because it could not come to terms with the union. This sparked consumer frenzy across the nation. Stores from Seattle to New York reported customers emptying the shelves as they bought boxes of the iconic "Golden Sponge Cake with Creamy Filling" by the armful.

Hostess, which also makes Wonder Bread and other baked goods, said it had to shut down because it didn't have the finances to weather an extended nationwide strike by workers. The strikes began after Hostess imposed a contract cutting workers' wages by 8 percent. The union said the contract also cut benefits by 27 percent to 32 percent.


Yesterday U.S. Bankruptcy Court Judge Robert Drain said the parties hadn't gone through the critical step of mediation and asked them to do so. He added pressure on the union by pointing out that it had rejected the company's contract even though it never filed an objection to it.

"Many people, myself included, have serious questions as to the logic behind this strike," said Judge Drain. "Not to have gone through that step leaves a huge question mark in this case."

Under the bankruptcy plan filed by the company, 19 corporate officers and high-level managers will receive $1.75 million in bonuses for carrying out the shutdown.

This and other parts of the liquidation plan have drawn criticism from U.S. Bankruptcy Trustee Tracy Hope Davis. In a court filing, Davis attacked provisions that would "grant bonuses to insiders" and "cherry-pick" which administrative claims get paid. She wrote that the case should be converted from a reorganization to a Chapter 7 procedure. If that were to happen a bankruptcy trustee would liquidate Hostess and distribute the assets in accordance with the U.S. Bankruptcy Code priority scheme.

Many of the executives getting bonuses received substantial pay raises earlier this year, within months of the company originally filing for bankruptcy. The salary of the CEO Gregory Rayburn tripled from $750,000 to roughly $2.5 million, and at least nine other executives received pay raises ranging from $90,000 to $400,000.

Even if the company does go out of business, Twinkies and other popular brands will almost certainly return to store shelves soon. The company says several potential buyers have expressed interest in the brands. Although sales have been declining in recent years, Hostess still does about $2.5 billion in business each year. Twinkies sales alone have brought in $68 million so far this year.

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