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Flicker of hope emerges for Hostess

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A faint hope of saving 200-plus jobs at the Hostess-owned Dolly Madison plant in Columbus — and more than 18,000 jobs nationwide — flickered a bit brighter Monday when a bankruptcy hearing in New York was adjourned to give the maker of Twinkies and striking workers another chance to settle their differences.

The move came as Fortune, a national business magazine, reported that private-equity firm Sun Capital Partners of Boca Raton, Fla., is interested in acquiring Hostess and keeping its manufacturing plants and workforce more or less intact.

Fortune reported Sun Capital privately expressed interest in acquiring Hostess earlier this year, but the bakery’s creditors didn’t sign on to the deal, opting for another reorganization plan that ultimately failed.

A hedge fund is not the ideal solution, said Larry Duncan, business agent for Local 132 of the Bakery, Confectionery, Tobacco Workers and Grain Millers Union.

“But if that’s what it comes down to, we’ll deal with them,” he said.

Duncan would prefer that another baking company buys Hostess or purchases the Columbus plant on National Road, which made Dolly Madison doughnuts and sweet rolls, and keeps it operating as a bakery.

Local 132 has been picketing outside the local plant since Nov. 9, when the national strike began. After the union ignored an ultimatum to return to work by 5 p.m. Thursday, Hostess Brands shut down operations nationwide the following day and filed a bankruptcy motion, seeking the court’s permission to sell its brands, plants and equipment immediately.

Monday’s developments, however, mean Hostess doesn’t have court permission to sell anything — at least not yet.

Instead, Hostess, its lenders and the unions representing striking workers, agreed to start mediation hearings today at the urging of U.S. Bankruptcy Judge Robert D. Drain. After a day of talks, the two sides would return Wednesday to U.S. Bankruptcy Court for the Southern District of New York in White Plains.

Since the local plant’s Friday closing, Duncan has been advising union members to file unemployment claims. About a half-dozen of them camped out at midafternoon, resting strike placards against lawn chairs on the sidewalk in front of their shuttered factory. They have pledged to stay there until status of Hostess Brands is decided.

The news about Sun Capital shed an entirely different light on the matter, however, especially since in 2006 the private-equity firm took over a struggling Indiana-based food chain in Marsh Supermarkets, which operates a grocery store less than a mile from the Dolly Madison plant.

“I think that we could offer a slightly better, more labor-friendly deal than what was on the table last week,” Sun co-CEO Marc Leder said in an interview with Fortune. “We would look to invest in newer, more modern, manufacturing assets that would enable the company to become more productive and to innovate.”

The Los Angeles Times on Monday reported other companies that might be in the mix:

Flowers Foods, a Georgia-based baking company and parent to the Nature’s Own brand, said Monday that it has extended its loan agreements, allowing the company to access more funds for acquisition financing and expansion goals, among other purposes. To analysts, the move signaled that Flowers is interested in picking up Hostess.

Hurst Capital filed a letter of intent in bankruptcy court Monday to buy Hostess’ assets — including intellectual property and office supplies — in a “multimillion-dollar” offer.

Reports during the weekend also named Bimbo Group, the Mexican company that owns Sara Lee and Entenmann’s, of having interest.

If no one buys the National Road plant, one of 33 that Hostess operates nationally, the proposal filed in U.S. Bankruptcy Court envisions no more than 28 workers remain on the payroll for four weeks or so as operations wind down. A few more employees might stay on for up to three or four months in Columbus and at Hostess’ other manufacturing plants, court documents filed by Hostess suggested.

Hostess said most plants would only have a single employee left as a skeleton crew member, with other business functions such as security outsourced to third-party


About 94 percent of the company’s 18,000-plus workforce would be gone after 16 weeks, Hostess said in its court filing, “as the majority of activities necessary to sell perishable goods ... and to clean, secure and prepare the various plants, depots and retail stores and corporate offices” for sale would be done by that time.

Nineteen senior managers who would be asked to stay on with Hostess during its sale of brands and equipment would get incentive pay as motivation and encouragement to meet various goals associated with dismantling Hostess. That could cost as much as $1.75 million, the maker of Twinkies, Ding Dongs and Wonder Bread said in its court filing.

Hostess blames the Bakery, Confectionery, Tobacco and Grain Millers International Union for its ultimate downfall, refusing to accept cuts in wages and benefits.

But the union blames a history of corporate mismanagement and a reluctance by Hostess to modernize its plants for the manufacturer’s second bankruptcy within eight years.

“The (union) has been focused on a single objective: compelling Hostess to restructure itself in a manner that would provide a real, rather than an illusory or theoretical, likelihood of establishing a stable business with secure jobs for thousands of employees,” the union said in court filings opposing the sale of Hostess’ assets.

The union said it wants Hostess and its manufacturing plants to fall “into the hands of true baking-industry operators who will have a fighting chance of operating a baking business.”

The union said Hostess has gone through six CEOs in eight years and contends that all of them have failed to reduce corporate debt or create new products that a more health-conscious U.S. public might want to buy.

As part of a 2004 bankruptcy restructuring plan, in fact, Hostess had promised to modernize its plants and trucks, invest in new technology, and develop “new products to increase revenue in the face of a national trend away from sweet goods and bleached flour breads,” union court filings said.

“Business plan after business plan failed, leaving the company deeper in debt,” the union added in its motion asking the bankruptcy court not to allow Hostess to proceed with its plan to close plants and sell assets piecemeal.

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