Bloomberg News

Twinkie Maker Asks to Void Labor Contracts to Cut Costs

April 18, 2012

Hostess Brands Inc., the maker of Twinkie snack cakes, began a court process to overhaul labor agreements to cut costs as it works to reorganize and emerge from bankruptcy protection.

Hostess is asking U.S. Bankruptcy Judge Robert Drain in White Plains, New York, for permission to reject union contracts, warning that it faces liquidation if it can’t modify labor deals.

Chief Executive Officer Gregory Rayburn testified at a hearing today that a proposed change to pension plans for workers is needed because the pensions can’t meet their obligations.

“We need to be fair and equitable in how we treat them,” Rayburn said about employees. Hostess has a responsibility to ensure “that whatever we are funding at whatever level is going to be there when the employees retire,” he said.

Hostess, which also makes Wonder bread and Ding Dongs, is on its second trip through bankruptcy. The hearing on the union contracts comes after the company failed to reach agreements with the International Brotherhood of Teamsters and the bakery workers union.

The Teamsters have authorized a strike if Hostess is allowed to impose contract terms. Rayburn said Hostess couldn’t survive a strike.

‘The Only Ones’

The Teamsters union, which represents more than 7,000 employees, said this week that it offered a counterproposal to the Irving, Texas-based company, saying workers “are the only ones doing the sacrificing.”

“Executives lie and claim labor costs are to blame,” Ken Hall, the Teamsters’ general secretary-treasurer, said in a statement. “But it is incompetence and greed, pure and simple, that have put this iconic company in the position it is in today.”

Hostess wants to end participation in multiemployer pension plans, saying its contributions of $103 million a year are “unsustainable,” according to a company fact sheet. Hostess has proposed ceasing contributions to “financially unstable” plans.

The company also wants to freeze wages and has proposed changing work rules that it says cause “widespread inefficiencies.” It wants to use third-party distributors to deliver products to some customers, according to the company.

Hostess filed for bankruptcy in January, blaming high labor costs. It said in court papers that investors are unlikely to provide new capital unless it can escape “crippling” pension liabilities. If it can’t impose labor changes, it will “almost certainly be forced to liquidate,” it said.

The case is In re Hostess Brands Inc., 12-22052, U.S. Bankruptcy Court, Southern District of New York (White Plains).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus