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Originally published November 19, 2012 at 8:11 PM | Page modified November 20, 2012 at 6:44 AM

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Hostess, bakers union agree to final bid to save company

Hostess Brands Inc. will hold talks with its bakery-workers union tomorrow to explore the reasons for a strike that the maker of Twinkies and Wonder bread said will force it to liquidate.

The New York Times

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Pushed by a bankruptcy judge eager to save thousands of jobs, Hostess Brands and one of its biggest unions agreed to mediation Monday, in a last-ditch effort to avoid winding down Hostess, the bankrupt maker of Twinkies and Wonder Bread.

At the behest of the judge, Hostess Brands and the Bakery, Confectionery, Tobacco Workers and Grain Millers Union, which represents 5,600 Hostess workers, will meet with a mediator Tuesday to try to narrow their differences and move toward a labor agreement.

If they succeed, it could prevent the liquidation of the company and save 18,500 jobs. Otherwise, Hostess is likely to auction off its well-known brands, leaving the fates of those workers in limbo.

In January, the 82-year-old company filed for Chapter 11, just three years after emerging from bankruptcy. At the time, the company said it was unable to pay its debts and needed to make deep cuts in labor costs to survive.

Hostess reached a new contract with the Teamsters, its largest union. But talks with the bakery workers deadlocked, and the union went on strike Nov. 9. With production slowing and its finances dwindling, the company announced plans Friday to liquidate.

Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York pushed hard for the two sides to try one last round of talks. The judge expressed worry that neither side had exhausted all efforts to avoid liquidation.

He especially urged the bakery union to seek mediation, suggesting it might face significant legal claims if Hostess is forced to liquidate.

"I'm giving the union, as well as the debtor and their lenders, a chance to work out their issues in private," Drain said. "If they don't take it, it's not that the issues won't be worked out. They will, but it will be done in public and in an expensive way."

The unions have been at the center of Hostess' struggle for survival.

When Hostess filed for bankruptcy, the company insisted its labor costs and union rules were unsustainable, and it moved to renegotiate the contracts. One work rule required that two separate trucks be used to ship bread and cake products to a single retailer.

The company also indicated it faced $52 million in workers' compensation claims.

The two main unions, the bakery workers and Teamsters, countered that years of mismanagement were to blame. The private equity backers had loaded the company with debt, the unions said, making it difficult to modernize the bakeries or product offerings. The bakery workers' president, Frank Hurt, called the private equity owners "vulture capitalists."

The two unions took different approaches to the negotiations.

The Teamsters hired a financial consultant, Harry Wilson, who had worked on the General Motors restructuring. He laid out just how much the union could get and still allow for the company to recover.

After eight months, an agreement was reached. The Teamsters agreed to a contract that cut pay by 8 percent immediately, with that cut shrinking to 5 percent next year.

The Teamster workers, most of whom drive trucks for Hostess, average about $20 an hour; the bakery union workers, $16 an hour.

The Teamsters contract reduced the company's health contributions by 17 percent and suspended its pension contributions until 2015. Hostess had originally insisted on freezing the pension plan permanently and ceasing all contributions.

The company eventually agreed to give Hostess' unions two seats on its board, a 25 percent share of company stock and a $100 million claim in bankruptcy.

Last March, the Teamsters helped push out Hostess' then-CEO after the board proposed tripling his salary even as he was demanding steep concessions from the workers.

The bakery-workers union was far more adversarial.

After Hostess' unions had agreed to more than $100 million in annual cost concessions during Hostess' first bankruptcy, the bakery union thought it made little sense to agree to further cuts. It feared a deal would pull down wages and benefits throughout the industry, without saving Hostess.

The union often derided Hostess' management, saying it was composed of Wall Street investors and "third-tier managers" from nonbaking companies. It said the investors were trying to "resolve the mess by attacking the company's most valuable asset — its workers."

Both sides refused to budge, and the bakery union went on strike at 24 of the company's 33 bakeries.

With the threat of liquidation looming, the Teamsters, called on the bakery workers to hold a vote to determine whether the rank-and-file workers wanted to end their strike and accept Hostess' offer — or face layoffs.

Last Thursday, Hall of the Teamsters told the bakery workers that Teamsters members could not believe liquidation and layoffs were what the bakery workers "ultimately wanted to accomplish when they went out on strike."

But the bakery union declined to hold such a vote. The next day, the company announced plans to liquidate and sell off its assets.

Now, Hostess and the bakery union will meet at the offices of the company's lawyers. Representatives for the Teamsters and the company's bankruptcy lenders were also invited. If the two sides cannot agree, Hostess' lawyers are expected to appear in court Wednesday morning to seek approval of their liquidation plan.

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