US Tries To Wrest Control Of Hostess Liquidation As Management Seeks To Pay $1.75 Million In "Incentive" Bonuses

Tyler Durden's picture




 

The Hostess bankruptcy liquidation, the result of a bungled negotiation between the company, its equity sponsors, its striking workers, and the labor union, over what has been defined as unsustainable benefits and pension benefits, is rapidly becoming a Ding Ding farce. The latest news in what promises to be an epic Chapter 22 fight is that the judge, pressured by various impaired stakeholders, among which none other than the US trustee, is that the bankruptcy Judge Robert Drain, who has previously presided over such Chapter 11 cases as Loral, RCN, Cornerstone, Refco, Allegiance Telecom, Delphi, Coudert Brothers, Frontier Airlines and Star Tribune, has ordered the company and its unions to seek private mediation to attempt averting what the company has already said is an inevitable unwind of operations.

Per Reuters, "Hostess, its lenders and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) agreed to mediation at the urging of Bankruptcy Judge Robert Drain of the Southern District of New York, who advised against a more expensive, public hearing regarding the company's liquidation. "My desire to do this is prompted primarily by the potential loss of over 18,000 jobs as well as my belief that there is a possibility to resolve this matter," Drain said." Sadly, this latest step will almost certainly lead to nothing constructive as it merely extends a status quo which already proved to be unresolvable.

What makes a mediation improbable is that the antagonism between the feuding sides has certainly hit a level of no return:

Several unions also objected to the company's plans, saying they made "a mockery" of laws protecting collective bargaining agreements in bankruptcy. The Teamsters, which represents 7,900 Hostess workers, said the company's plan would improperly cut the ability of remaining workers to use sick days and vacation.

In the off chance that mediation does lead to a reconstruction of the failed company it may ironically benefit from the closeout sale of its products as confused Americans hoarded Twinkies, Ding Dongs and Ho Hos in hopes of selling them on Ebay as collectible items with huge marks up, something we warned previously will fail. Regardless, the firesale will lead to a surge of cash in the company's coffers, which will then lead to a scramble over how it is divided.

Then comes the question of whether or not someone steps up in the liquidation process and buys the company in part or whole. Here we learn that Grupo Bimbo, long expected to be the natural suitor for at least the firm's trademarks and IP, will not participate in said process. Hostess CEO Rayburn said Grupo Bimbo won’t be a potential buyer for the bankrupt baker. “One misconception in the market is that Bimbo would be a buyer and bakery leadership told us in several plants that Bimbo would come in and buy, which is absurd,” Rayburn said in an interview with Bloomberg Television. Rayburn cited Bimbo’s agreement with the U.S. Justice Department to sell some Sara Lee brands in order to complete its acquisition of Sara Lee’s North American bakery business. “Due to antitrust, it would never happen,” Rayburn said.

More to the point, and as we predicted on Friday, if there is an outright purchase of the company, it will be a standalone entity, without its unions: Hostess will draw strategic buyers and private-equity investors for its brands, Rayburn said, without naming potential bidders. The company is “more attractive” to buyers without the unions, he said. In other words, if the Union had hoped that their workers would be retained by the purchasing entity, their dreams just got shattered.

But while the Union may be sad, it is about to add another emotion to its arsenal: blind fury. Because it is here that things get truly surreal. As the US Trustee, a Justice Department official responsible for protecting creditors, disclosed, as part of the wind down of Hostess, wants to pay as much as $1.75 million in incentive bonuses to 19 senior managers during the liquidation.

This is just part of the millions to be spent imminently on the wind down:

The process requires “intensive” planning, staffing and funding, the company said. A fire-sale liquidation would damage equipment and result in improper disposal of waste materials.

 

It’s “not a simple matter of turning off the lights and shutting the doors,” Hostess said in court papers.

 

The baker estimated that shutting the plants will cost $17.6 million in the next three months. The plants have about $29 million worth of excess product ingredients, Hostess said.

 

About $6.9 million will be spent to close depots, while $8.8 million will be used to idle retail stores and $8.1 million will go to shutting corporate offices, according to a court filing. Perishable baked goods at retail stores will be sold at going-out-of-business sales, donated to charity or destroyed, Hostess said.

Most importantly, however, is the question how one explains to 18,500 workers who are already out and looking for jobs that the management team which was just as responsible for crushing the company deserves on average $92,000 each in "incentive bonuses, is anyone's guess and one does wonder what safety precautions said management team may have taken to protect from what is certain to be the collective wrath of its former workforce.

Naturally, the immediate outcome of this rather obscene demand, which may fly in a Chapter 11 KERP proposal but hardly is tenable in a liquidation proceeding, is that said US Trustee is now seeking to take control of the liquidation away from the company. As BBG reported earlier, "U.S. Trustee Tracy Hope Davis asked the judge to convert the case to a Chapter 7 from Chapter 11 bankruptcy, based partly on the company’s intent to pay bonuses, and appoint a trustee to supervise the wind-down."

But wait, it gets better: because it is quite likely that should an emboldened US Trustee get her wishes granted, will push to continue operating Hostess as a going concern, potentially with a court appointed, and US Trustee selected management team.

In essence this could result in a stealth nationalization of the junk food maker, which would preserve the jobs of the workers for the time being, but crush the balance of the capital structure, i.e., secured and unsecured creditors.

Impossible, you say? It has happened, to a big extent, before. Recall a certain bankruptcy case of one General Motors, where the claims of creditors were primed by those of the labor unions.

Granted, such a perversion of the bankruptcy process would be historic, but in a country in which everyone is to blame for everything, and in which property rights are becoming a very nebulous concept, we would certainly not be surprised if the US government ends up "bailing out" Hostess by a mandatory flipping the capital structure, over the cries of the company's creditors, further pushing the country into the twilight Banana zone.

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Mon, 11/19/2012 - 18:09 | 2997024 kaiserhoff
kaiserhoff's picture

Never waste a crisis.

Mon, 11/19/2012 - 18:17 | 2997055 ParkAveFlasher
ParkAveFlasher's picture

TSTF

 

 

 

Too snackilicious to fail.

Mon, 11/19/2012 - 18:23 | 2997092 Randall Cabot
Randall Cabot's picture
"While the company was filing for bankruptcy, for the second time, earlier this year, it actually tripled its CEO’s pay, and increased other executives’ compensation by as much as 80 percent. Over the past eight years since the first Hostess bankruptcy, BCTGM members have watched as money from previous concessions that was supposed to go towards capital investment,  product development,  plant improvement and new equipment, was squandered in executive bonuses, payouts to Wall Street investors and payments to high-priced attorneys and consultants. BCTGM members are well aware that as the company was preparing to file for bankruptcy earlier this year, the then CEO of Hostess was awarded a 300 percent raise (from approximately $750,000 to $2,550,000) and at least nine other top executives of the company received massive pay raises. One such executive received a pay increase  from $500,000 to $900,000 and another received one taking his salary from $375,000 to $656,256." http://www.nationofchange.org/hostess-blames-union-bankruptcy-after-tripling-ceo-s-pay-1353255416 
Mon, 11/19/2012 - 18:27 | 2997107 redpill
redpill's picture

I ate a Twinkie today, it's probably been 25 years since I've had one.  Fucking disgusting.

Mon, 11/19/2012 - 18:57 | 2997213 gmrpeabody
gmrpeabody's picture

I spent 30 years in a union, and let me assure you they don’t give a rat’s ass about the rank and file. Their number one priority is to avoid work while maximizing overtime.

And they particularly resent the 20% that have to bust their chops covering for the 80%.

Mon, 11/19/2012 - 19:21 | 2997281 Fredo Corleone
Fredo Corleone's picture

Hostess continues to circle the Drain.

...So to speak.

http://wonkette.com/wp-content/uploads/2012/11/dead-twinkie.jpg

Mon, 11/19/2012 - 19:44 | 2997343 NotApplicable
NotApplicable's picture

Funny thing is, due to their near infinite shelf life, everybody bought all the Twinkies they'll ever want for the rest of their lives.

They'll be sitting in the spare bedroom closet, right next to the Beanie Babies.

Mon, 11/19/2012 - 21:18 | 2997597 Enslavethechild...
EnslavethechildrenforBen's picture

Why have unions and actually pay people to work when you can get them to work for free in other countries?

Americans need to wake up and start working for free.

As a matter of fact, americans should PAY to WORK

 

Mon, 11/19/2012 - 22:16 | 2997704 LetThemEatRand
LetThemEatRand's picture

Speaking of which, anyone else see the irony that management -- whose sole remaining job is to wind down a business and put people out of work (the new "productive class" I suppose) -- understands the need to incentivize themselves to do this job, but everyone else should just be happy to have a temporary job for less pay and no benefits?

Mon, 11/19/2012 - 22:27 | 2997722 TruthInSunshine
TruthInSunshine's picture

The U.S. Treasury, being brilliant Central Planning Committee that it is, could always merge Solyndra & Interstate Bakeries, somehow, and create a successful (by CronyKomradeCapitalismSocializationOfLosses standards) company.

Mon, 11/19/2012 - 23:10 | 2997817 Zer0head
Zer0head's picture

McCartney says skip the turkey/dingdong on Thanksgiving

 

http://www.france24.com/en/20121119-mccartney-says-skip-turkey-thanksgiving

Mon, 11/19/2012 - 23:51 | 2997878 palmereldritch
palmereldritch's picture

Obama's Twinkie Economy.  Best before 2016.

Tue, 11/20/2012 - 00:59 | 2997973 Bananamerican
Bananamerican's picture

"Hostess, wants to pay as much as $1.75 million in incentive bonuses to 19 senior managers during the liquidation."

 

Asked about the fate of Hostess line workers, upper management responded, "let them eat Twinkies"

Tue, 11/20/2012 - 01:35 | 2998007 ebworthen
ebworthen's picture

I just knew this was a crony capitalism operation.

"It's the Unions!"

Bullshit.

Oh yeah, it's those bakers making $18 an hour, not the managment making $100K + bonuses for doing nothing other than making the company fail to cash out.

Fucking joke the U.S.A. has become.

Tue, 11/20/2012 - 02:15 | 2998041 Richard Chesler
Richard Chesler's picture

God's work is not free.

Tue, 11/20/2012 - 05:56 | 2998161 Bobbyrib
Bobbyrib's picture

Depending on the region of the country that the union workers are in, to me it is excessive to pay these people $16-$18 an hour. They had one guy on CNBC who was makin $16 an hour, but $4 an hour in additional compensation should have been going to his pension. He was bitching that if the agreement with management were accepted he would lose his pension benefits. The guy was from the high COL area of Kansas City, Mo. $20 an hour is compensation to bake goods for the fatasses of this country in KC,MO!? Give me a fucking break. I'm usually pro union, but this is an example of unions taking advantage of their position.

Tue, 11/20/2012 - 08:03 | 2998251 Gazooks
Gazooks's picture

"These people", heh?

 

You probably should know by now, bobby, those words are a dead give away of someone not deserving a fucking break. Like the rest of the predictable anti-labor choir here, you just pull shit out of your ass and fling it at the screen for points. Sorry mf's every fucking parrot one.

 

“If you over-lever a business, and you don’t invest back into the business for a period of years, you’re going to wind up in bankruptcy.”—Greg Rayburn, Hostess CEO, 2012

 

'Despite the fact that it’s had two bankruptcies since 2004, that its management has proven woefully inadequate (it’s had six CEOs since 2002), and that its Wall Street masters ( a private equity firm and two hedge funds) burdened Hostess with $800 million of debt, the blame for this mess is being laid on the BCTGM (Bakery, Confectionery Tobacco and Grain Millars International Union)...'

 

and,

 

'In the wake of Hostess’ 2004 bankruptcy, the BCTGM willingly gave back $110 million in concessions. This was done in return for the company’s promise that it would invest in new machinery and new technology...'

 

...of course, the exec's pocketed millions and the 'investment' was never made. Read it.

 

 

http://www.counterpunch.org/2012/11/20/labor-union-unfairly-blamed-for-t...

Tue, 11/20/2012 - 13:11 | 2999132 flattrader
flattrader's picture

I am continually surprised at the anti-worker, anti-labor and anti-union sentiment expressed here.  Some of us who have been watching the Hostess drama for the past several years know what a wholesale rape the management has committed against the company and the employees.

You would think ZH readers would learn by now that whatever the first idiot story posted by the Tyler's blaming the union workers for killing their own jobs had to be full of crap if for no other reason than it just didn;t make any sense.

Yeah, there's more to this than meets they eye and it will come out.

Tue, 11/20/2012 - 09:58 | 2998446 archon
archon's picture

$16 an hour?  Heck, they'll make more than that on welfare and unemployment, and now they'll have time to protest and break other peoples' sutff too.  This is win-win...

Tue, 11/20/2012 - 08:03 | 2998249 onthesquare
onthesquare's picture

These, so called bakers, are not the same cut as a hands on, one off, baker.  They are more like people who start the machines, dump the truck loads of chemicals in the giant mixers and let the computers do the rest while they read the sports section. 

The 3000 mile salad has nothing to be ashamed of considering the bulk of air bag chip crumbs carried across the country to satisfy every remotely discerning taste bud.  Reduculous!

The sooner this petrochemical food is left behind the better.  Eat a locally grown apple with some apple scab to be sure it is pesticide free.

Tue, 11/20/2012 - 13:59 | 2999287 Carl Spackler
Carl Spackler's picture

Well played, sir (Bananamerican), well played.

Tue, 11/20/2012 - 14:15 | 2999323 Carl Spackler
Carl Spackler's picture

$1.75MM for 19 managers is cheap for a bankruptcy of this size.  Tyler is playing so many union and democrat hacks here for fools by touching to their socialist nerve.

The REAL WORLD situation and decision the Banruptcy Trustee faces is this...would the creditors lose less money than $1.75MM in recoveries from liquidation of assets if certain key people remain to liquidate those assets or would the creditors lose more than $1.75MM in recoveries from liquidation if those people leave the company now.

The Bankruptcy Trustee believes the creditors will lose less if there is an incentive for certain managers to stay on board until after liquidation of assets. Duh!

Tue, 11/20/2012 - 00:54 | 2997965 jonjon831983
jonjon831983's picture

Maybe it is more politically correct to call it an incentive than to call it "Hazard Pay".  Wouldn't want it to seem like a dangerous endeavour to fire off thousands of pissed off workers.

Tue, 11/20/2012 - 07:29 | 2998214 Go Tribe
Go Tribe's picture

"...understands the need to incentivize themselves to do this job, but everyone else should just be happy to have a temporary job for less pay and no benefits?"

 

Are you describing the Federal government?

Mon, 11/19/2012 - 23:57 | 2997893 HurricaneSeason
HurricaneSeason's picture

I doubt you'd find a country that would pay twinkie factory workers $32.50 an hour plus a pension and have them want more for their twinkie skills.  They should pay $2.95 an hour in Mexico and have them flown in on some of the brand new cargo planes the government is getting ready to throw away. We need a ding dong twinkie solution before tackling the fiscal cliff.

Mon, 11/19/2012 - 21:28 | 2997615 tenpanhandle
tenpanhandle's picture

More likely packed in their collective colons, indefinitly.

Mon, 11/19/2012 - 20:51 | 2997539 smithcreek
smithcreek's picture

The politicians have truly succeeded when they get the citizens subjects to go at each others throats over something that has no real meaning in their life.  Investors made inverstment mistakes, labor made unsustainable wage demands.  Fine, let them both take their lumps and go out of business.  People will find someone else to make their snacks.

Mon, 11/19/2012 - 23:01 | 2997797 Walter_Sobchak
Walter_Sobchak's picture

i truly thought twinkies would be the sole survivors of the collapse.  this changes everything

Mon, 11/19/2012 - 23:11 | 2997819 tsx500
tsx500's picture

nope. That makes way too much sense !

Mon, 11/19/2012 - 23:41 | 2997862 upWising
upWising's picture

I BELIEVE YOU MISSED A KEY POINT IN YOUR ANALYSIS WHICH I FIXED FOR YOU:

Investors made inverstment mistakes, labor made unsustainable wage demands, TOP EXECUTIVES MADE POOR MANAGEMENT DECISIONS YEAR AFTER YEAR AND THEN "REWARDED THEMSELVES" WITH OBSCENE SALARY AND PENSION GRABS.  Fine, let them ALL take their lumps, LET THE EXECS STAND IN UNEMPLOYMENT LINES LIKE EVERYBODY ELSE,  and let the enterprise go out of business.

Mon, 11/19/2012 - 23:49 | 2997873 smithcreek
smithcreek's picture

You didn't fix anything, you simply made my point for me.  It's easy to claim they made poor decisions when you have no clue what decisions they made, except maybe a couple rolled out by your favorite highly slanted source of news.  So itt appears you are exactly the kind of person I described to start with.  All whipped up in a lather for or against the execs or labor in a company whose success or failure means nothing to you.

Tue, 11/20/2012 - 01:29 | 2998001 Bananamerican
Bananamerican's picture

well, yes Smithy....but your response amounts to dickish Sophistry

Tue, 11/20/2012 - 06:00 | 2998165 Bobbyrib
Bobbyrib's picture

Can't you tell? He seems to be one of those people that look up to the executives that gut our country every day and take home large paychecks to do so. Even CNBS wasn't disputing that management had fucked up royally.

Tue, 11/20/2012 - 03:56 | 2998096 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

sent from your obamaphone?

Tue, 11/20/2012 - 01:24 | 2997998 Mugatu
Mugatu's picture

So here's a question: If Uncle Sam becomes the owner of Hostess, does that mean that Twinkies will end up in official Food Pyramid?

Tue, 11/20/2012 - 02:10 | 2998032 patb
patb's picture

well, the union workers could chip in and buy the company and run it themselves.

 

 

Tue, 11/20/2012 - 03:57 | 2998098 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

union leaders, actually work?  

Tue, 11/20/2012 - 06:34 | 2998187 Gazooks
Gazooks's picture

key word here is workers, HAB

Tue, 11/20/2012 - 07:47 | 2998229 Acet
Acet's picture

But then they would be accused of being Communist.

 

Mon, 11/19/2012 - 19:29 | 2997305 nmewn
nmewn's picture

I have to admit, its been funny as hell watching the left do backflips over this.

The Twinkie you see (according to the left), is all that is bad in America, a Satanic confection really. It makes you fat (jacking up healthcare costs), its delivered in carbon belching trucks (manmade global warming!) and will last for a hundred years unopened on a shelf because of all the chemicals in them (Dow chemical trails!)...long after cockroaches succumb to man's threat to the planet...the Twinkie will survive they say.

However, Twinkies are made by union labor and trucked to stores with union labor. The Twinkie supports thousands of union households. Problem (sound of tires screeching to a halt).

Ding ding the Twinkies dead!...the wicked Twinkies dead!!!...wut?...wait, the Mexicans want the brand & want to manufacture it there and ship it back here? (the Grinchy Grinch snarled)...there needs to be a law!!!...lol.

Its just been fucking classic.

Mon, 11/19/2012 - 21:30 | 2997619 Abiotic Oil
Abiotic Oil's picture

Speaking of Anthropogenic Global Warming, this fellow caught TPTB altering the historical temp data. Making the cold colder and the warm warmer to make AGW look real.

http://www.abovetopsecret.com/forum/thread900568/pg1

Mon, 11/19/2012 - 22:31 | 2997729 edb5s
edb5s's picture

Wow.

Tue, 11/20/2012 - 00:14 | 2997929 Mary Wilbur
Mary Wilbur's picture

Very interesting.

Tue, 11/20/2012 - 01:06 | 2997982 jonjon831983
jonjon831983's picture

eh?

 

 

Tue, 11/20/2012 - 03:14 | 2998073 Clashfan
Clashfan's picture

Thanks for that, AO!

 

Tue, 11/20/2012 - 06:52 | 2998198 Gazooks
Gazooks's picture

de-explains actual accelerating de-glaciation, sea level rise and oceanic acidification 

 

wtfu

 

 

Tue, 11/20/2012 - 07:41 | 2998222 Go Tribe
Go Tribe's picture

Amazing. Little surprise. They really, really want our money.

Mon, 11/19/2012 - 22:55 | 2997786 A Nanny Moose
A Nanny Moose's picture

No fucking shit. Quite the conundrum indeed.

Mon, 11/19/2012 - 23:21 | 2997833 brettd
brettd's picture

Spot on.  It's funny theater.

Management gets bonused for getting the thing BK'd 3 months ahead of schedule. 

 

Mon, 11/19/2012 - 23:45 | 2997867 nmewn
nmewn's picture

The "management" was bailed out by Gephardt & Co previously...they then blew through that 170 million? in "corporate/union partnership money"...filed around the first of this year after that for Chapter 11 and everyone was still whistling past the graveyard when something out of the graveyard grabs them and snatches them back into reality.

Realities are a real bitch when you're promoting "clean living" while being paid by the Cookie Monster...lol...kinda like investing your life in Pepsi and living in Bloombergs NYC ;-)

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