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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brettd's picture

If the exec jobs are so easy, go be an exec!

For the love of Pete folks, there's 10% unemployment out there.  Driving 

a Twinkie Truck and working a dolly are hardly unique/high-value skills. 

Cathartes Aura's picture

you're focusing on the minutiae and missing the massive looting going down - everywhere, it's a model/pattern.

I'm not "defending Unions" - they definitely have their fair share of arrogance and sloth - but if you take the facts of this particular case, and understand them, you can't help but see the pattern of strip mining a corporation in order to wind it down - these are "legacy" US trademark corporations - and yes, they sell toxic shit I wouldn't feed anyone - but this is the globalisation pattern, shuttering amrkn factories, and setting up somewhere "cheaper" down the road.

it's been going on for decades.

ah well.  guess those workers will have to move to Utah for the brand new spy-work .gov paychecks. . .

Bananamerican's picture

"If the exec jobs are so easy, go be an exec!"

fer sure brett....Just ask John C.

awakening's picture

'If the exec jobs are so easy, go be an exec!'

Problem is not what you know but more importantly who you know.

Put best by George Carlin - 'It's a big club and you ain't in it.'

No point me wasting the time, effort and money ($1 trillion or so on the books in the US, called student debt, says competition is already fierce before you gain the 10 gram certificate) when I don't know the right people (nor ever would, I'm not that sociable and would be even less so among the type attached to salaries bigger than these small fish in the article) to ensure that it would result in a job that is worth the time spent in its duration.

 

Acet's picture

+1 This

What we have is Crony Capitalism, not Free Market.

Harp all you want about Wealth Creators and such. The truth is that nowadays the vast majority of those getting rich from companies are really just hired administrators who got where they are because they know and collude with the right people (and are in each other's Compensation Boards), who have no skin in the game, steal from the actual owners of the company by keeping those that manage the money of others (for example pension fund managers) sweet with personal promises and favours and have used the company's money to buy laws and regulations (like poison pills, staggered board elections and the like) to make sure shareholders have no real power.

Forget about true Entrepreneurs - they're a minority nowadays and when they try and take their companies off the ground, they get screwed left and right by bought for regulations protecting big companies.

We are in the Age of the Parasites, not the Age of the Builders.

Stoploss's picture

** US GOVERNMENT NATIONALIZES HOSTESS.

 

It's coming. There's a union involved..

HurricaneSeason's picture

If it brings on civil unrest, then it will be a matter of national security.

TruthHunter's picture

Unlike Apple Juice, Twinkies can't be made in China.  When Wage equality is Global, maybe unions will have leverage again.

 

Oh, and try to find Tilapia that doesn't come from a Chinese sewer...

MeBizarro's picture

Sure they can.  It just depends on the overall cost of production but since you would likely have to ship large amount of raw materials across vast distances for what is a low profit margin consumer item it makes almost no economic sense.  They will just relocate the production to cheaper US states where labor rates are more friendly or to northern Mexico entirely.  

NidStyles's picture

Tilapia is the most abundant fish species on the planet. It's found everywhere, as in Fresh Water, Salt Water, everywhere.

 

 

Buck Johnson's picture

When this whole game ends, it will be in tears in regard to our economy.

 

lasvegaspersona's picture

I am so grateful we have laws and we are a country of laws. If we were a country just governed by the whims of men, why we could wind up with another GM type thingy.

When this is settled I hope the merikan peeps see we are finally just another loosely controlled dictatorship.

And I burned a gallon of gas to vote...I may learn my lesson yet...

OldPhart's picture

If it's good enough for a bank, or car company, or investment firm then it's good enough for a bakery.  I don't see the problem here.

LongBalls's picture

"Something for nothing and your chicks for free". - Dire Straits

QQQBall's picture

Barry could have been assured of 18k votes if this had happened b/f the election. He has 4 more years, so bakery workers are not auto workers.

walküre's picture

Barry or Mittens, who cares? It's time the unions pull together and take their gloves off. Regardless of who is in office.

 

gmrpeabody's picture

I'd say the union has already done a good job. <sarc>

dark pools of soros's picture

if you mean the colluding union of corrupt managers, then I agree

brettd's picture

Yep.  Sure told those execs where to go!

I'm jobless, but I've got my pride!

 

NidStyles's picture

You're jobless because you are failing at taking responsibility for yourself.

fonzannoon's picture

Unions should be allowed to collectively bargain and not vote or vote and not collectively bargain. They are just as bad as the banksters, maybe worse.

walküre's picture

How can they be worse? Do they print money like there's no tomorrow and generate their revenues from thin air?

The opposite is true! The unions are representing the downfall of the banker's monopoly capitalism. Sure, there are bad examples for unions and their actions. This is not one of them.

The only opposition to the banker's corporate dream of mass slavery is the union. The revolution will start at the union level or not at all.

fonzannoon's picture

I am more curious about your felings on the public unions. By worse I mean that every public union dispute around me is quietly solved by raising taxes. Raising taxes is the same to me as printing money. You are taking it from me without my permission to give to someone else.

Matt's picture

It seems to me that Unions are a kind of cartel, that collude to manipulate the price and supply of labor. As such, I think they should be examined under RICO.

mercenaryomics's picture

Always found it sickening that antitrust law doesn't apply to unions, since its pretty obvious that's exactly what they are. 

Debt-Is-Not-Money's picture

Union = Legalized Extortion

darteaus's picture

Yeah, that Richard Trumka - he's like a Kyle Bass and a Mother Theresa all rolled up in one!

Unions - especially public unions - have always been known for their sage economic wisdom, long term view and altruism!

1100-TACTICAL-12's picture

Screw the unions & screw Ding Dongs, We are better off if they both disappear. Every union job I had to work on all they did was bitch & hold the job up as much as they could. I mean we would have to get a carpenter from the other end of the site to bend a fucking nail over ..GMAFB..

fonzannoon's picture

My wife is in design. She gets to work by 8:30. Her company has some union workers. They get in around 9am. They take several breaks and are gone at 4:59pm. She can't rely on them for anything because they could give a shit. If she treated her job the way they did she would have been fired a month after she started.

walküre's picture

It's never a good idea to have a blend of employees in one business.

gmrpeabody's picture

Makes the union workers look pretty bad..., eh?

ali-ali-al-qomfri's picture

screw ho-hos with your ding-dongs; there fixed it.

rayduh4life's picture

If you're going to have capital organized, you sure as hell need to have labor organized.

Ask a dentist what happens when you have no opposing force.

 

Antifaschistische's picture

Collective Bargaining is coercive representation...its that simple. Its anti liberty and anti freedom. Sort of like me being represented by the clowns in Washington. Its the Enslavement of societal host for the benefit of the collective parasites.

Dan Conway's picture

Leave mittens out of this because he had nothing to do with it.  The unions blindly support dumbocrats so take that "save the workers BS" elsewhere.  It was the bakers union that turned down the deal and then whined when they realized the chief restructuring officer wasn't bluffing.  How stupid are these union thugs?  The only jobs the union leaders care about are their own and they view the union membership as nothing but pawns to collect their big checks.  The union membership pay their dues that get funneled to dumbocrats like bloomberg, obama, and pelosi that are doing their best to bankrupt all of these companies.  Do you think bloomberg's initiatives to eliminate crap food and drink from NYC is a benefit to hostess bakers?  Morons!

NotApplicable's picture

Wasn't Bain involved in the first bankruptcy?

SokPOTUS's picture

Yep.  Gloves off.  Tools down.  Asses sitting.

Oldwood's picture

Bring it on! I'll be damned if anyone tries to tell me who i hire or fire and what i will pay. No one wants to excuse a corrupt business but as far as I know no business outside of government has been "officially" granted a monopoly as unions have. I have no problem with collective bargaining but no one has the right to force me to employ them and I have no right to force anyone into my employ. So far as I know this is still America, not communist China....yet. But you pro union socialists just keep it up and I'm sure we'll get there soon enough!

Robslob's picture

But but...Senior Management didn't "Eat That"....hahahahahahahaahahaha

 

This may be the first time in history Unions lose...and with a stacked deck...guess they thought Hostess couldn't live without'em...what a bunch of Ding Dongs...

Debt-Penitent's picture

A twilight Banana-Creme Republic...wow.

Ballin D's picture

What keeps these companies with unskilled union labor from going to universities and offering 50% over minimum wage to all the unemloyed lib arts students?

Serious question.  The students get better wages than they would at starbucks and the company gets labor for a much lower cost than the unionized labor.  Theres no need to do much hunting around either.  I bet they could get a flow of a few hundred students a year from each school they recruit at.

Rogue Trooper's picture

Good point but carefully consider how much value for that extra 50% will you get from an MA Arts graduate with a double major in Interpretive Dance and Cultural Diversity? Just sayin'

NidStyles's picture

Better value than the 200% Union alternative that you can not use the loss of their wages as a motivator for them to actually improve the quality of their labor with.

spastic_colon's picture

just about every US company is worth more without their unions....the US is more competetive without the unions......let precedent be set for god's sake

spastic_colon's picture

four more years here and I won't have too

walküre's picture

You'd be there quicker on the Mittens ticket! I guarantee you that. Do you like slave labor?

spastic_colon's picture

there are no guarantees....and we like to call it unit labor cost