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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 - 23:36 | 2997849 buzzsaw99
buzzsaw99's picture

I don't eat that crap and couldn't care less.

Mon, 11/19/2012 - 23:38 | 2997855 MeBizarro
MeBizarro's picture

Why even comment?

Tue, 11/20/2012 - 07:12 | 2998207 buzzsaw99
buzzsaw99's picture

et tu?

The union, management, and hedge fund maggots deserve each other imo.

Mon, 11/19/2012 - 23:47 | 2997871 lostcause
lostcause's picture

The spoils of war always go to the few that wage it, while the rest of us are forced to fight for the crumbs.

Mon, 11/19/2012 - 23:59 | 2997879 Augustus
Augustus's picture

"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.

tTe company could have continued in operaton with union concessions.  They might have had to eat chicken rather tha beef.

For every $million in bonuses, the cost per empolyee is about $50.

The union dickheads can express their outrage about  the $130 or $200 per employee bonus to management by closing the company.   Meanwhile, the Wonder Bread driver cannot deliver Twinkies.

These dummies should be working on the turkey lines for Tyson.  Or maybe the workers in Main will shoot moose and chop wood/  Oh, for the good ol' days.

What is really rich to consider is that it is a Dickie Gephart and Teamsters investment fund that will have the investment Go To Zero in the liquidation.  Why can't they just send more money?

 

 

Mon, 11/19/2012 - 23:52 | 2997884 Freewheelin Franklin
Freewheelin Franklin's picture

Just kill all the lawyers and put it on Craigslist.

Problem solved.

Tue, 11/20/2012 - 04:13 | 2998107 CCanuck
CCanuck's picture

Ya the same lawyers that should have written into contracts that, if the short-sighted greedy fuck's running the show, run it into the ground they have to give up their pay during liquidation, and take on some real labour too!!!!!

That's why they make millions a year right, because they are supposed to be responsible for the company?

Fuck'n educated morons need six-seven figure salaries to do what exactly??

I know, they get the 1st life boat, with room for the contents of the safe, before the ship goes down.

Fuck every lettered MBA, CEO, COO, CFO, CA, CPA, EatmyfuckingshortsAAAA BBLLAHH,BLahhh...blah...blowhards running Hostess, real fucking hard!

Cc.

 

Tue, 11/20/2012 - 07:06 | 2998203 Freewheelin Franklin
Freewheelin Franklin's picture

Have another shot and a beer. Your comment is almost comprehensible.

Mon, 11/19/2012 - 23:54 | 2997887 dognamedabu
dognamedabu's picture

Good thing they are getting the $1.75 million dollar bonus or else who knows how fucked things could get?

Tue, 11/20/2012 - 00:04 | 2997909 ScotlandTheBrave
ScotlandTheBrave's picture

Seen this happen too many times. Top dogs do a leverage buyout and get rich while loading a crapload of debt on the company. Debt payments overwhelm the company and they file for reorg and line their pockets more and escape out back door. New investors who were sweet talked into buying the dead horse because, gee its hoo hoos and twinkies, hire jacklegs who sweet talked to run the joint. These jacklegs then proceed to line their thieving pockets while driving the business to ch 7. It's the new Amerkani rapine way. These are not capitalist, these are thieves and robbers raping the host-ess before it reaches room temp. I feel for the investors...but they climbed in the bed with money rapist and not producers. The producers bailed when top dogs flipped the switch and loaded the crap debt load the first time. Debt is slavery...just ask the host-ess.

Tue, 11/20/2012 - 01:10 | 2997988 JLee2027
JLee2027's picture

I don't think that's what happened here. The unions made them unprofitable and drove them under. Yeah, management is going to take their money off the table as bonuses and go out of business. Not right, but it's legal.

Tue, 11/20/2012 - 01:57 | 2998024 Catullus
Catullus's picture

I don't think Hostess LBO'd at anytime.  That's really the scheme. 

The $1.75M is probably just a Change in Control provision within executive compensation that is in just about everyone's contract at a certain level.

Tue, 11/20/2012 - 03:53 | 2998093 Angry White Dude
Angry White Dude's picture

Erroneous. In a liquidating 11 or 7 it is ubiquitous for existing management to seek, and usually receive, financial incentives for sticking around to help execute the sale of the business/assets, on the argument that the way to extract maximum value is to sell quickly and have those who know the assets stick around to preserve the assets. If everyone walks away to get a new job with a non-BK company and the liquidation is run by a trustee who doesn't have the institutional knowledge, you generally end up with a fire sale. If the Orderly Sale Price - Bonuses > Fire Sale Price, then bonuses were a sound expense. Problem is that you never really can empirically test it. Which is why courts will generally approve such bonuses.

Tue, 11/20/2012 - 12:16 | 2998897 Ident 7777 economy
Ident 7777 economy's picture

Good explanation and have been thru this myself (but on a merger) where bonuses are paid to retain knowledgeable personnel.

97% of the brainless on this site do not understand this concept though ..

Tue, 11/20/2012 - 00:11 | 2997922 HermesHiccups
HermesHiccups's picture

Man, there really must be a God up there because I think he is trying to show everyone an example on a small scale how fucked up the sytems is. I believe this may have almost all the fucked up financial/labor/goverment ingredients that we see in the world today and these ingredients are as toxic as a fucking Ho Ho and twinky combined and will put you in the same place as if you ate these garbage snacks over the past 50 years (buried in the ground)

A producer of a snack food full of shit ingredients is on the verge of BK due to unions (run by union bosses)excess and a managment team (Wall Street private equity) who gave themselves huge raises as the companies profits shrank and they cut back the pay of workers. Company is force to file BK and only hope of survival is if one of the unions will take a pretty good pay-cut. The union tells the manement team to fuck off even though they know there is a very good chance that will force the company to liquidate and all the jobs will be lost as well as having a good chunk of these unions employees cross the picket line to go back to work in order to feed their families and try and save the company. Since the union will not take pay cut the company follows through on promise to liquidate but in the BK papers they give themselves a fucking bonus as they are laying off 18,000 workers. The government in the form of the federal BK trustee takes the stupitity of managment as an excuss to possibly take over the company fuck and stand contract law on its head to reward the unions (the employees an afterthough of course). The end results could very well be a government run toxic snack food company run by some Obama CZAR of who the fuck knows what.

Man you really can't make this stuff up

Tue, 11/20/2012 - 01:11 | 2997989 BraveSirRobin
BraveSirRobin's picture

So, by the time the government is done with this, the government will give a $5.00 tax credit for each box of Twinkies and Ding-Dongs sold, buy out the company for the union for $13 billion while retaining a 40% equity stake, and require the company to buy and deliver its products in Chevy Volts.

But of course, they will eventually sell their shares to the public, and we will make a cozy profit, sometime in the future, that is.

Is that about right?

Tue, 11/20/2012 - 03:27 | 2998081 Bobportlandor
Bobportlandor's picture

 One problem how does O. explain this to Michael and how does Michael explain it to the schools. 

Be Damn them children Michael, the brothers must come first.

Today I Obama decree a new slogan "A Twinkie a day everyday" If you can't afford it don't despair we'll add it to health care.


 

Tue, 11/20/2012 - 01:15 | 2997993 BraveSirRobin
BraveSirRobin's picture

Oh, and as poster above also noted, they will force Hostess to develop and sell "healthy snacks" instead of their current fare.

Tue, 11/20/2012 - 00:13 | 2997928 Cardinal Fang
Cardinal Fang's picture

Only a union guy could punch out Twinkies on an assembly line and call himself a Baker. (btw, long ago I was a Teamster. Local 478 So. Kearney, NJ ... Got Mob?)

Now I am Proud Lackey of the Bourgoisie Reaction.

 

Tue, 11/20/2012 - 00:30 | 2997947 dwdollar
dwdollar's picture

What we have here is a failure to understand that the value of labor AND the value of the modern US CEO "skill set" are both declining.

Tue, 11/20/2012 - 06:03 | 2998167 NidStyles
NidStyles's picture

Wow, I had to go a whole page in the comments to find someone that actually understood the problem well enough to not argue on some preconceived political/idealogical notion.

Tue, 11/20/2012 - 01:03 | 2997979 JLee2027
JLee2027's picture

Hilarious. No one is permitted to liquidate, even their own business, anymore.

Tue, 11/20/2012 - 01:13 | 2997990 BraveSirRobin
BraveSirRobin's picture

Hmmmmmmmmmmm. That won't impact new business formation at all, don't you reckon?

Tue, 11/20/2012 - 01:55 | 2998019 Catullus
Catullus's picture

Having they officially made selling illegal yet?

Tue, 11/20/2012 - 02:26 | 2998048 q99x2
q99x2's picture

Long live Mayor Muscone.

Tue, 11/20/2012 - 03:02 | 2998062 toomanyfakecons...
toomanyfakeconservatives's picture

My property tax bill would be "more attractive" without teachers unions. In fact, you could just fire all the teachers and burn the schools down... the kids would probably end up smarter.

Tue, 11/20/2012 - 03:02 | 2998063 IridiumRebel
IridiumRebel's picture

Crapitalism

Tue, 11/20/2012 - 03:07 | 2998069 Kastorsky
Kastorsky's picture

Tyler, how come no post about this?

SEC Rocked By Lurid Sex-and-Corruption Lawsuit

 

http://www.rollingstone.com/politics/blogs/taibblog/sec-rocked-by-lurid-sex-and-corruption-lawsuit-20121119

Tue, 11/20/2012 - 03:27 | 2998080 MarcusLCrassus
MarcusLCrassus's picture

It is mostly private equity firm's fault.  Unions had very little to do with this.  Just look at the numbers:

 

Of the debt that Hostess has:

$50-$60m outstanding to trade creditors
$36m min lease obligations
$180m in accured workers compensation liabilities
$75m debtor-in-posession loans
$850m in secured debt outstanding.

Yeah.. TOTALLY the unions fault. TOTALLY THOSE SOUL CRUSHING PENSIONS. except.. NOT.

 

https://sphotos-b.xx.fbcdn.net/hphotos-prn1/12767_10151317072356153_3688...

Tue, 11/20/2012 - 03:56 | 2998095 Angry White Dude
Angry White Dude's picture

Respectfully, your post reflects fundamental lack of understanding of how a chapter 11 bankruptcy works. Suggest you start with 11 USC 1113 and 1114.

Tue, 11/20/2012 - 04:11 | 2998106 MikeMcGspot
MikeMcGspot's picture

Respectfully, USC trumps the constitution.

Just ask your Executive or Legislative or Judical branch.

Who you serve?

USC.

Tue, 11/20/2012 - 03:59 | 2998097 slackrabbit
slackrabbit's picture

Thank god!

I was about to do the same thing.

CMON people, some logic and reason!

This is meant to be ZH, where we actually go through the numbers.

Not go crazy over the PR bs spin we get from MSM  CNBC etc.

Tue, 11/20/2012 - 04:00 | 2998100 MikeMcGspot
MikeMcGspot's picture

Problem, Solution, Reaction.

Go along to get along.

Frame the context as you see it.

Problem, Solution, Reaction.

Go along to get along as you see fit.

Or not.

 

Tue, 11/20/2012 - 04:38 | 2998119 ebworthen
ebworthen's picture

Wall Street killed Hostess, and a squadron of MBA monkey bats.

Tue, 11/20/2012 - 04:44 | 2998121 bunnyswanson
bunnyswanson's picture

http://www.youtube.com/watch?v=FmFSWMBWb7Q

 

Brother Nathanel addresses the Israel slaughter of Palestinians.  (interesting man!)

Tue, 11/20/2012 - 12:19 | 2998920 Ident 7777 economy
Ident 7777 economy's picture

Correct that to addresses the Palestinian slaughter of Israels.

 

Ask the question of "Who fired first" before posting garbage. 

Tue, 11/20/2012 - 04:51 | 2998126 laomei
laomei's picture

Of course, let's just entirely ignore the fact that since 2011 management has refused to pay into the independent pension funds, in violation of contracts.  While at the same time still deducting the employee pension contributions and keeping it as their own.  Of course, this missing money becomes "debt" as the funds are dumped over to the hedge funds as profit, and then, despite being profitable they decide to rework the contracts to make this stolen money vanish from the records.  Cus they sure as hell don't want to pay it.  But let's ignore this and blame the evil unions who fight back when $48k jobs turn into $25k jobs in under a year while money is flat out stolen from employees paychecks and funneled off to vulture capitalists.  

Tue, 11/20/2012 - 06:21 | 2998178 giggler123
giggler123's picture

What's a ding dong taste like?

Tue, 11/20/2012 - 06:21 | 2998179 ReeferMac
ReeferMac's picture

Same thing happened to Kodak.

The same crooks that ran the company into the ground, were paid mega-bucks to 'stay onboard and help restructure the company'...

But, but, but... if your last job, was taking an American Icon w/ a wealth of intellectual property and one-of-a-kind engineering talent, and turn it into a bankrupt non-manufacturing entity, who the hell would 'hire you away'?

When the wolves are guarding the hen-house, there's no penalty for helping yourself while the getting's good.

Tue, 11/20/2012 - 06:22 | 2998180 Sechel
Sechel's picture

Hostess cakes are a health hazzard. Good riddens and probably more dangerous than smoking a pack of Marlboros.  And yet the media is more worried about the job impact of the hostess workers than they are about the farmers who grow tobacco. Poison is poison, people need to be consistent.

Tue, 11/20/2012 - 12:21 | 2998928 Ident 7777 economy
Ident 7777 economy's picture

'Good riddens'?

 

Where DIDN'T you go to school?

 

 

Tue, 11/20/2012 - 07:32 | 2998215 deerhunter
deerhunter's picture

While working a college summer job in a union factory I was confronted by two union lifers for working too hard and getting the rate on piecework raised to make time and a half.  I could make rate in 6 hours and play poker in the break room for 2 hours a shift without breaking a sweat.  They told me if I didn't slow down they would slow me down.  I was a 19 year old kid.  Before I left they had slashed all 4 tires on my car however the rate was triple when I started and they would never see time and a half on that particular job again for sure.  You need a union electrician in Chicago's convention centers to plug in your equipement in a trade show booth.  They will contribute greatly to the death of what is left of this country.  As far as a bridge falling apart because of non union labor I think not.  And 3 bridges would have been built in the time it takes union guys to build one.

Tue, 11/20/2012 - 10:50 | 2998628 roadhazard
roadhazard's picture

I love how "management" no matter what the business can make a fortune as they say they can't pay the workers. Fuck a bunch of white collar, tie wearing, ass kissing corporate sluts. No, motherfuckers, you couldn't make a product if you had to but you can sure rape the business to death.

Those damn Unions, lol.

Tue, 11/20/2012 - 12:24 | 2998944 Ident 7777 economy
Ident 7777 economy's picture

all worked up and IT'S NOT YOUR MONEY.

Something is wrong with that.

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