Hostess, bakery workers head to mediation; liquidation on hold–for now

Federal bankruptcy judge Robert Drain on Monday urged Hostess Brands to seek the help of a mediator to resolve a strike by members of its bakery union, BCTGM. Hostess agreed, temporarily putting its planned liquidation on hold.

Negotiators from Hostess and BCTGM will meet with a mediator on Tuesday morning.

The Teamsters, Hostess largest union, which primarily represents delivery drivers and those who support the drivers, said that it would “closely monitor the mediation . . . and assist in any way we can to help the two sides reach an agreement that keeps the company’s doors open.”

BCTGM did not issue a statement about the mediation.

BCTGM did, however, submit a motion Monday in bankruptcy court that joined other unions affected by the possible liquidation in objecting to the company’s request to be allowed to begin winding down operations.

In its pleadings, BCTGM carefully laid out reasons why its members went on strike even though they knew that there was a good chance that Hostess would react to the strike by going out of business.

Foremost among their reasons was the belief that the company’s owners were not interested in meaningful restructuring that could make the company viable again.

Members of the union suspected, instead, that the private equity companies that now own Hostess–Ripplewood Holdings, Monarch Alternative Investments, and Silver Point Capital–were more interested in diverting company assets to their own pockets

The pleadings point to past experience to justify their concerns. In 2009 as part of a deal to help Hostess exit from its first bankruptcy, BCTGM members agreed to reductions in their health and welfare plans and work rule changes that achieved “significant labor cost savings.”

In return, according to BCTGM, the company agreed to invest these savings in new equipment, new technology, rebranding its products, such as Twinkies and Wonder Bread, and plant modernization–investments that could help Hostess regain its lost market share that led to its first bankruptcy.

But this reinvestment never took place. Hostess used savings generated by the workers’ concessions instead to pay private equity fees to its new owners and executive pay increases and bonuses.

The company also took on more debt. To buy the company in 2009, Hostess’ new private equity owners borrowed $713 million. Since then the company’s debt has increased to $860 million.

When the first bankruptcy ended, BCTGM warned that unless the company got serious about reinvesting in its operations, the company’s heavy debt load would soon lead to another bankruptcy. The warning proved prescient.

Instead of working with its unions to avoid a second bankruptcy, the company again blamed workers for its troubles.

After the company declared its second bankruptcy, it began bargaining with the bakery workers on a new contract. During the negotiations, Hostess demanded that the bakery workers agree to an 8 percent wage cut, 20 percent higher worker health care costs, allowing the company to freeze pension contributions until 2015, and the elimination of eight-hour work shifts.

Having been burnt once, BCTGM members were skeptical about accepting more concessions. In September when Hostess stopped negotiating and made its final offer, 92 percent of the BCTGM membership voted to reject it.

When the company decided to unilaterally implement its final offer, the union felt that it had no choice but to strike. Savings from any concessions that workers made would once again be diverted to the private equity firms instead of into meaningful investment in operations. Without new investments in operations, the firm would soon be back in bankruptcy court for the third time.

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