Hostess Bankruptcy Trial: Judge Robert Drain Ruling May Ensure Twinkies Survival

Don't mourn or celebrate just yet. Depending on how you feel about snack cakes and Wonder Bread, there is either good news or bad news.

On Monday (November 19, 2012) Judge Robert Drain of the U.S. Bankruptcy Court in New York declined to approve the liquidation of Hostess Brands, recommending instead that the company and union try arbitration in lieu of the nuclear option. Both Newsweek and the Wall Street Journal were quick to report the results of the court hearing, much to my relief.

Judge Drain appears to believe that Twinkies will be saved one way or another. Perhaps he's a big fan. It is highly unusual to deny liquidation, but Judge Drain expressed surprise that Hostess and the Bakery Workers union had not actually talked to each other since August. Nor had they attempted to use arbitration to settle their differences. Arbitration is quite en vogue these days and you often waive your rights as a consumer to sue in favor of going to arbitration - usually without even realizing you've done so. With courts apparently all-in on this idea, it's not surprising that Judge Drain wasn't quite ready to let Hostess start selling off the ovens and rolling pins.

A somewhat surprising revelation which came out in Monday's liquidation hearing was the fact that Hostess sought approval to pay $1.75 million in bonuses to members of management who agreed to stick around to turn out the lights. No mention of what employees would be paid for literally turning out the lights and locking the doors at 36 bakeries, 242 depots, 216 retail stores and 311 hybrid retail store-depots.

Pabst Brewing Co. has expressed interest in at least some of Hostess' brands. I'm not a fan of PBR beer, but I might be if they save the Ding Dong. Bimbo, the U.S.' largest bakery cartel and owner of brands like Sara Lee, has also been named as a potential buyer. So has Sun Capital. There doesn't appear to be any shortage of investors who might rescue the beloved Twinkie, though the Bakers' union may have led its rank and file members to believe that somebody was standing outside with cash in-hand when the union decided to force a shut-down. Turns out that wasn't quite true.

Also turns out that the Bakery Workers union only represents 5,000 of Hostess' 18,300 or so employees. The union claims that 90% of its members voted not to accept Hostess' concessions on salary and benefits. The Teamsters, however, who represent 6,700 Hostess employees, voted to accep the concessions by secret ballot. So, it's not entirely clear that the striking workers represent a clear mandate. According to an article on CNN Money, the Teamsters appear to be assuming a role as a mediator between at least two groups of employees.

While there are plenty of naysayers still predicting that this situation is beyond salvaging due to the lack of trust on both sides, it ain't over yet. Fans of Ding Dongs as well as some employees hope for the best.

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Mike Cooper

"Discretion is the better part of valor."

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