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Twinkie Maker Calling It Quits Over Strike

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Bundled against the cold, more than a bakers' dozen of union bakers in Northeast Philadelphia continued their strike against a company now trying to sell itself out of business.

Hostess Brands Inc., maker of Twinkies, Wonder Bread, Ding Dongs, and Ho Ho's, said Friday it would liquidate the company and put its brands up for sale "to the highest bidders," its chief executive said.

Closing would mean the loss of 18,500 jobs nationally, including more than 400 at a Hostess plant in Northeast Philadelphia and several depots around the region.

"It's very sad," said Hostess CEO Gregory F. Rayburn, who had been hired to turn the company around. "I don't want anybody to be out of work."

Despite $2.5 billion in sales, the company, now in its second bankruptcy proceedings in a decade, has been in trouble for years. But the precipitating event, at least according to the company, was the refusal of union bakers to accept concessions and return to the job by 5 p.m. Thursday.

The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union went on strike at Hostess plants across the nation early Saturday after rejecting a concessionary contract approved by a bankruptcy judge last month. The same contract had been approved by the International Brotherhood of Teamsters.

"I think, unfortunately, the leadership of [the bakers'] union led their members to believe that there is a buyer in the wings, even though there is no buyer," Rayburn said in an interview with CNBC.

He described the shutdown as a "consequence ... not a threat." He said customers would quickly grow frustrated if they couldn't find their favorite brands on store shelves.

"Of course, they are blaming the union," said Robert Ryder, secretary-treasurer of Teamsters Local 463 in Fort Washington, which represents 130 drivers, mechanics, and packers at the Northeast plant.

"You can't just keep fixing the company" by making the workers take cuts, he said.

Rayburn said that besides union work rules and other employee costs, "there is plenty of blame to go around," including poor management, debt, and a lack of investment. Also, he said, the entire segment is too crowded.

"To stay in business as a condition of bankruptcy, they had to cut their operating expenses immediately," hence, a push for quick union concessions, said Robert Costello, who heads the $55 million Costello Asset Management fund in Huntingdon Valley, and who is a former stock analyst who covered Tastykake and other food makers.

But, he said, "It's a brand that's been under-managed for a long time. I'm not blaming the unions. This was a fait accompli. You have a slow-growth economy, and the weakest are the first to go when they have problems."

The debt from the previous bankruptcy meant the company had no money to put into marketing -- and marketing is a must in the snack business, Costello said. That's particularly the case as companies such as Bimbo Bakeries USA of Horsham and Tastykake's owners, Flowers Foods of Georgia, are ramping up their marketing budgets.

"When was the last time you saw a Hostess coupon?" Costello asked.

Bimbo, Flowers, and J&J Snack Foods Corp. in Pennsauken are potential buyers for various Hostess brands, he said.

A plan orchestrated by private-equity firm Ripplewood Holdings and hedge funds led by Silver Point Capital and Monarch Alternative Capital brought Hostess out of bankruptcy in early 2009 with $670 million in debt. Losses continued, and the company went back into bankruptcy in January with $861 million in debt.

Ripplewood stands to lose 100 percent of its equity in the plan submitted to the bankruptcy court last month.

The wind-down means the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes, and 570 bakery outlet stores throughout the United States, the company said.

In an interesting labor wrinkle, the Teamsters voted to accept the concessions, although the bakers did not. On Thursday, the Teamsters pressed the bakers to put the concessions to a second vote.

Hostess estimated in a court filing Friday the liquidation could last a year. To start, 3,200 employees will be retained to oversee the wind-down, but only 50 will remain after 13 weeks.

Hostess has not filed a complete analysis of its liquidation value, including its brands, but it estimated Friday its real estate could sell for more than $200 million.

At the plant in the Northeast, about 40 to 50 workers from Local 6 of the bakers' union were outside the gates. A few members from a chapter in Maine had come to walk a picket line, which local members chose not to cross this week.

The Philadelphia AFL-CIO will hold a rally at the plant at 11 a.m. Monday.

Tucked into a corner near the Northeast Philadelphia Airport property, the plant made Wonder Bread, rolls, doughnuts, and Ho Ho's -- chocolate cake rolls. Company security officers allowed one or two pickets at a time to enter the plant to pick up their belongings.

Workers said average pay for older workers was $18 per hour, but that a second tier was added in 2000, with newer workers starting at $10 per hour. They complained that the company had cut holidays to only Christmas and Thanksgiving. Many said the 8 percent pay cut was horrible.

All of those interviewed said the company's decision to stop pension contributions and dramatically increase the employee contribution to health-care costs were the most troubling.

Patrick Muldoon, 50, who lives in the Northeast, has worked as a machine operator in the factory for more than 25 years. Like many, Muldoon blamed the hedge funds that are Hostess' major investors and CEO Gregory Rayburn.

"He's a Mitt Romney wannabe," Muldoon said of Rayburn.

In his interview, Rayburn made the point that the bakers, who constitute 30 percent of the Hostess workforce, put 18,500 people out of work.

"We're not second-guessing it," said Barry Fields, who heads Local 6, which represents 330 members at the Northeast Philadelphia plant. "This was well thought out by the company. They did a good job making us look like the bad guys."

In an earlier interview, Fields said, "We're fighting for our pensions, we're fighting for our health care, we're fighting for our wages, we're fighting for our way of life."

Joe Johnson, who also lives in the Northeast, was asked whether, if all the Twinkies and jobs disappear from this plant, he would still be happy that the union rejected the company's last offer, with the idea that some income is better than no income.

Johnson thought for a second and said, "Yes. It's not worth working under the conditions. I believe out of bad, good things come."

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