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Twinkies maker Hostess Brands files for bankruptcy

By Caroline Scott-Thomas , 11-Jan-2012

Wonder bread and Twinkies maker Hostess Brands has filed for Chapter 11 bankruptcy to allow it to restructure, but does not expect to stop producing or delivering any of its products during the process, the company said on Wednesday.

The company said it would seek to reach a consensual agreement with unions over labor agreements, as employee costs have squeezed the company, in addition to higher ingredient prices and a more competitive US bakery sector. Hostess Brands employs about 19,000 people and owes more than $1bn to creditors.

“The company’s current cost structure is not competitive,” it said in a statement, citing pension and medical benefit obligations, restrictive work rules, a continuing difficult economic climate, and a more difficult competitive landscape.

President and CEO Brian Driscoll said in a statement: "We have engaged in good-faith bargaining with our labor partners for many months. We remain hopeful that we can reach an agreement that will allow us to amend our labor contracts so that we can emerge from Chapter 11 as a highly competitive company that provides secure jobs for our employees."

The company said it would be able to continue production and distribution of all of its brands due to a $75m loan from a group of existing lenders.

Anita-Marie Laurie, a spokesperson for the company, told FoodNavigator-USA that staff layoffs are not anticipated as a result of the bankruptcy.

Hostess said it intends to develop a new business plan with a sustainable cost structure, competitive employee benefit plans and investment in modern systems and facilities “to meet changing customer needs and consumer tastes.”

Laurie said that the company did not plan to revise its product portfolio however.

“The strength is in our brands and our brands continue to sell quite well,” she said.

Driscoll said: "With these changes, we can access capital to reinvest in our Company again and begin to level the playing field with our competitors. This company has tremendous potential if we can remove the barriers to success."

This is the second time Hostess Brands has filed for Chapter 11 bankruptcy in the past few years, the last time in February 2009. However, measures carried out then have proved insufficient, the company said, as increased competition and consolidation in the industry “has given other bakery companies major economies of scale and workforce advantages.”

Bakery competitor Flowers Foods acquired Tasty Baking Company for $165m in April last year, and its CEO George Deese predicted in August last year that there was likely to be further consolidation in the sector in 2012, due to rises in input costs, cautious consumers and higher capital gains tax.

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