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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ACP's picture

"...something out of the graveyard grabs them..."

Evil Dead, I say!

Mary Wilbur's picture

There are some outrageously funny comments here. All of you have made my day.

BeetleBailey's picture

Concur nmewn....well said.

stocktivity's picture

How many thin union reps have you ever come across?

nmewn's picture

Ding!!!...we have a winner!

When the zombie apocalypse happens, just run through the union hall and out the back you an hour head start ;-)

EnslavethechildrenforBen's picture

Bankers are Evil

Bankers are Fat

Some of the Union dudes are Fat

Therefore all Unions are Evil and everyone shoudl forfeit their right to bargain for a fair wage so they can afford to pay their bills..

Makes perfect sense...


tenpanhandle's picture

As a past member of three different unions in my career, I'd say you just about nailed it.  Oh wait, was that sarc?

EnslavethechildrenforBen's picture

I'm 5th generation UNION.

I can barely afford to pay my bills. I am not fat. If a non union (non-professional) worker did my job, all of the bridges we build would collapse.

NOT sarcasm

hawk nation's picture

Blame the government for making everything more expensive and destroying the american dream

Its the cost of the benefits that are driving companies out of the usa

Bananamerican's picture

this planet will never realize the gifts and genius of truly Free Markets™ until everyone on it is working for free.

A Nanny Moose's picture

I find it amusing that nobody is discussing the role of government in "saving" the sugar industry. The result, of course is; a completely decimated sugar and confectionary industries , higher prices to consumers, and Hecho en Mexico.

Gazooks's picture

'cost of the benefits that are driving companies out of the usa'


not driving health care vultures anywhere


benefits, like my bro doc's regular pharma paid 'loyalty' excursions to paradise

BraveSirRobin's picture

You didn't build that. Now shut up and pay your fair share.'s picture



I'm 5th generation UNION.

I can barely afford to pay my bills. I am not fat. If a non union (non-professional) worker did my job, all of the bridges we build would collapse.

NOT sarcasm


Obama and his advisor Robert Reich aren't worried.

"I am concerned, as I’m sure many of you are, that these jobs not simply go to high-skilled people who are already professionals" -- Robert Reich addressing congress on infrastructure spending in the Obama stimulus plan.

Rogue Trooper's picture

Not sarcasm? Well you could have fooled me. Have you got a defined benefit plan as well.... cannot believe these still exist haha! Write to your trustees and insist they go all in Gov Bonds.  You're a partiot are you not 5th gen?

/Hostess Liquidation... The gift that just keeps giving.

cranky-old-geezer's picture



You mean "professional" union workers like these "professional" union crane operators and riggers here, here, here, here, and (best of all) here?

Bridges don't fall because professional engineers design them 

...and they're non-union :)

Union doesn't make you professional.  It just makes you greedy.

No true professional would ever be in a union. 

nmewn's picture

The only people who aren't fat in a union operation are the ones they keep in a locked room, with a single naked light bulb over their head, sliding an abacus back and forth...the accountants, counting the money.

Don't fool yourself.

Every CEO is the same just as every union boss is the same, they derive their wage off the labor of others.

EnslavethechildrenforBen's picture

You are right about your opinions on most subjects, but this is not one of them

nmewn's picture

In your opinion? ;-)

My first and last experience with a union went like this (when I was young and full of hope for my fellow man).

I got laid off here in Fla.

Went to the union hall, parked in my beat up un-air conditioned truck and walked past the union bosses red corvette sitting in the sweltering parking lot and into his office where his secretary sat. Explained to her, she buzzed him, he told her for me to take a seat and wait.

I waited about five minutes, admiring the fine paintings on the walls, got up and asked his secretary what the deal was. She said he's busy. I said, well thats nice, I'm not, walked past her desk, opened his door and announced myself.

There he was, cowboy hat, ostrich skin boots propped up on the corner of his mahogany desk talking on the phone, not a care in the world...smiling. He said I'll call you back to whoever he was talking to and hung up...obviously a very important call to keep me (a dues paying member waiting ;-)

I told him what was going on, he said he had heard of the layoffs and said there was nothing available.

So I motherfucker, I've paid my dues (because I was forced to) for your goddamned ostrich skinned boots, your mahogany desk to put them on in your air conditioned office, your secretary outside this door who is no doubt calling the cops right now. Let me tell you something you son-of-bitch, I will never work for another union as long as I live...dick...and wlaked out slamming the door behind me causing one of those fine paintings to fall off the wall.

I never have or ever will work for another union...and now I don't have to...and I keyed his fucking Vette too.

EnslavethechildrenforBen's picture

You are right. Americans should work for free like the Chinese.

nmewn's picture

I chose to work for myself from that time FORWARD...for the highest bidder.

Bananamerican's picture

I'm guessing that ballzy, union kiss-off happened not that long ago.....

I was in a besieged sheet-metal union briefly in the 90's....we had indoctrination meetings once a week in which the glories of past union might were nostalgically, wistfully laid out to the assembled apprentices with promises of regained glory to come.

"What's to stop the same union excesses from happening all over again?" i'd suicidally ask.

Even then I could see the writing on the cave-wall as sure as i could see the number of mexicans coming online for the scab shops on the bigger projects. (which is also when/how I learned to NEVER leave my tools unattended)

Management grinds the line to dirt, as long as it can get away with it....the anvil swings back...Corvettes in the Union lot, double time on Saturday$....The sledge responds "You don't like it? Wang Chung will do it for a nickel and Robbie the Robot doesn't fucking even need that!"....

There IS a place in the middle there somewhere....if People weren't such short-sighted, douchebags of self-importance.

nmewn's picture

It happened when I was around 20-22yrs old...I'm 53 now.

You're right Ban, there is a balance. Getting to that balance is the issue.

I had the good fortune to work with a union steward after that. A fine man, ex-Navy, really busted his ass on the job, not a slacker.

At night he would take care of the union business (can't do it during the day, per the rules, and he didn't, I know, I worked with him all day). He told me he would stay up sometimes till 1:00AM trying to come up with ways to get idiot union guys out of trouble, he was their advocate. They would file greivances for the stupidest shit.

He finally got tired of it and gave it up. It ground him down. He then quit the union around the time I moved on to something else.

I walked into an office about five years later and there was this tall guy in a suit...he turned around and I out blurted out "Smitty! the hell are ya?!"

He smiled and said, "Mr. ______ you are the ONLY one in this room who can call me Smitty and get away with it. To everyone else in here, I'm Mr. Smith." We laughed, shook hands, went outside and caught up on old times leaving the room in stunned silence. He had become the Regional Director for the very company he had fought so hard against for everyone else.

He chose a similiar path as me, made his life better.

A Nanny Moose's picture

Either way, you work for the benefit of another.

cranky-old-geezer's picture



You are right. Americans should work for free like the Chinese.

That argument was valid 60 years ago, but not today when union people make double what non-union people make, triple when you consider benefits.

Unions have gone from oppressed to oppressors, from underdogs to tyrants.

But whatever.   You'll push your employer to bankruptcy and you won't have a job anymore ...unless you're government union. 

Like paying those high taxes supporting your government union buds?

archon's picture

Yeh, that about sums up my two experiences working in "union" shops...  everyone thinks they pay their dues to be protected from random acts of termination, but when it happens, "the union" apologizes because either there's nothing they can do, or they're not interested... Never again.

Rogue Trooper's picture

Yep, 1st rule... Cardio!

The whole Twinkies drama is hilarious.... more to come I think.  You are right 'nmewn' that this whole thing has really fucked up he whole progressive world thinking big time. It's a gift that just will not stop giving!  The Zombieland analogie make it even more special. A question on this: Did not Tennessee claim that they have an expiry date?


A Nanny Moose's picture

Karen Lewis is on a diet...relatively speaking

rayduh4life's picture

And it would seem you learned little in those "30 years".  Who hired and retained those 80%?   It's called divide and conquer peabody.  As management, you Always burden the union with slackers and riff raff(relatives).

Oh, and the roll of the 80% is to keep the 20% from figuring out how hard they're getting screwed.

tenpanhandle's picture

Its always someone else, isn't it!?!? Bullshit, I say to you.

Drachma's picture

How many union workers does it take to not make a twinkie? All of them.

Retronomicon's picture

$1.75 million to 19 people???  That's chump change, not even worth writing about really, given the billions that have been stolen.  A government bailout worth be a worthy topic, but that hasn't happened.

HurricaneSeason's picture

I read that the unions get a 2 year severance package.  That might only be their wish before it's over.

Antifaschistische's picture as usual.   They have dramatically altered the recipe of all these once tasty treats.   Bring back the original recipes....or die.

ptoemmes's picture

As long as the Twinkie you ate was not 25 years old you will probably still be with us later today, but please do let us know.



gmrpeabody's picture

They're just like, wouldn't you say?

Progressive Journalism for Positive Action

redpill's picture

I'm not a violent person but if someone actually said that name to me in person it would be hard not to punch them square in the face.

MillionDollarBogus_'s picture

Union rules - the bread from Hostess goes to a store in one truck and the sweet stuff from the same Hostess plant to the same store arrives in a different truck.  The drivers can't touch the product they haven't delivered, once it gets to the store.


ShrNfr's picture

And that is just the Teamsters Union.

Randall Cabot's picture

If these companies would treat their people with respect there wouldn't have ever have been unions-look at the way the bastards treated miners and steel workers.

jerry_theking_lawler's picture

Fuck you RC....unions strive to destroy businesses. I work in a plant that a major pharmaceutical owned....this is a new plant (built in the early 2000s). started off non-union and life was great for everyone. when times got a little lean and there was a short spell of wage/benefit comes the union with big promises. now there are complicated work rules and the employees now hate the union but can't muster enough 'force' to get it back out. so i say fuck them and fuck the unions. if a man can't stand on his own merits...then fuck him to.

dark pools of soros's picture

you are an idiot..  managers are on a rampage these days laying off everyone and cashing out bonuses and massive raises.  Do you really think these managers are honest people giving a damn anymore??  everywhere is a money grab.

Union compensation hold value since they aren't all in fiat. On a site like this you would think they would say unions are smart to diversify their compensation since beni's rise in value as fiat tanks.   You should be wondering why everyone else is getting screwed down the chute without a fight.


Cathartes Aura's picture

corporate government winding down incrementally, all bonuses go to the top, it's a model, and a pattern.

edit:  and another upvote for the Pinata Economics post - more truth.

what is interesting is where the lines are drawn, and sides taken. . .

NidStyles's picture

You calling someone an idiot with a post like that...


Everything is priced in Fiat, so it doesn't matter if they are just stright up handing out that Fiat for compensation. Likewise when the Fiat runs out for being doled out, the gravy train will stop. The same thing will be apparent when they run out of Fiat to pay for the those extended long term benfits, like Medical and Pensions.

This site is not about teaching about investing.


dark pools of soros's picture

Pinata Economics.. 

Why bother running a company when you can steal enough from it to retire?

screw the workers and smash and grab the business to shit..  If Romney was voted in they would blame him for this stuff but this shows you the plan goes on no matter the puppet at the top

you can blame greedy and lazy unions all you want but management and gov officials are all bleeding companies to the ground




EnslavethechildrenforBen's picture

Why blame the criminal bankerticians when we can shift the blame to the common man for wanting to feed his family?

 Americans need to work for free and live in cardboard shacks like the Chinese. Only bankers deserve to have food and clothes

Cathartes Aura's picture

you're right of course, the corporate model for "third world" companies has always been a massive spread between monies awarded the execs vs. monies budgeted for the actual workers. . . this is the model amrkns thought they were spared, because most of the corporations were based in the US - but it worked so well for them, they're finally bringing it to the homeland, and the scramble will be for ANY work that pays - which, of course, is intentional.

up vote.