Posted on 09/15/2007 9:43:29 AM PDT by Prolixus
Interstate Bakeries threatens to liquidate unless unions grant concessions By JENNIFER MANN The Kansas City Star
Bankrupt Interstate Bakeries Corp. said Thursday it could be forced to liquidate if it is unable to extract major concessions from its 20,000 union workers soon.
The assertion, the latest in an escalating labor confrontation, came in the struggling company’s request to the U.S. Bankruptcy Court for still more time to exclusively formulate a plan of reorganization. The current deadline is Oct. 5.
The Kansas City-based company, once the nation’s largest wholesale baker, sought protection from creditors and time to reorganize the business in September 2004. At the time, the company cited escalating costs, including for pay and benefits for employees, amid declining sales.
At stake is the future of one of Kansas City’s largest companies and the maker of such iconic brands as Hostess Twinkies and Wonder bread.
Interstate officials contend that union concessions are crucial for the company, which employs about 750 in the Kansas City area, to remain a stand-alone entity.
In the filing, Interstate said that it had obtained financing commitments for its reorganization plan but that those commitments were contingent on extracting additional concessions from union workers.
The company’s two main unions are the Teamsters, whose members sell and deliver its goods, and the Bakery Workers, whose members bake and package the products.
Interstate said some of the lenders had given it until Sept. 30 to get concessions.
If it doesn’t, the financing will dry up and the company will have no recourse other than to ask the bankruptcy court for 30 days to come up with an orderly plan to sell the “company and/or its assets in its entirety or in a series of transactions.”
The assertion by the company comes just days after negotiations with the Teamsters and Bakery Workers unions broke off. Union officials said the company was demanding too much from their members who had already given up a lot.
Rich Volpe, international director of the Teamsters, said Thursday the filing by Interstate was a tactic to keep interested buyers at bay.
Volpe said he knew of at least two parties that had expressed interest in the company. One is Yucaipa, an investment company led by Ron Burkle of Los Angeles, which owns stakes in several companies, including grocery chains. The other potential investor, Volpe said, is an equity firm affiliated with J.P. Morgan.
Neither has expressed an interest publicly.
“Our attorneys will be in court when that hearing comes up on October 3rd, and we think the only reason they’re filing this is to block potential buyers,” Volpe said. “We think strategically it’s a blocking move to keep everything in house to themselves, and we don’t think it’s for the betterment of the company or its employees.”
Interstate says that if it gets the concessions it says it needs from its unions, it has several parties interested in providing financing for the company as it emerges from bankruptcy. The company is asking the court to give it until Jan. 15 to file a plan of reorganization and until March 15 to solicit support from the various constituents.
Before filing for bankruptcy, Interstate employed 32,000 workers at 54 bakeries in 49 states.
Its stock has continued to trade during the bankruptcy, but it has fallen below $1 a share. It closed Thursday at 90 cents, up 5 cents.
Since filing for bankruptcy, the company has shut down seven bakeries and announced the closings of four more at the end of October. Interstate has laid off more than 7,000 employees, with its work force shrinking to 25,000.
An additional 1,300 jobs will be lost when Interstate quits making and selling bread in Los Angeles at the end of October. The company also announced this week a revamping of its sales organization and the elimination of 215 management positions.
Interstate also has sold off $100 million in assets.
But the company said in its filing that though it had made progress in cutting expenses, its commodity costs had been escalating. Fuel and energy expenses are up, and the cost of wheat, it said, is at an all-time high.
Analyst Kevin Starke of Weeden & Co. in Greenwich, Conn., said that there would be various break-up scenarios for the company, including selling the Hostess, Wonder and other brands, and possibly the sale of some of the company’s bakeries. But he doesn’t envision one in which a buyer would be interested in acquiring the company lock, stock and barrel.
Since filing for bankruptcy, the company has gained wage and work-rule concessions from the Teamsters and Bakery Workers unions. But under the leadership of Craig Jung, chief executive officer since February, the company says it needs many more to emerge from bankruptcy and be a viable force in the future.
The Teamsters have said that 50 percent of their workers stood to see their wages decline by 10 percent to 25 percent under changes being proposed by Interstate that would drastically change the way it distributes its products.
Interstate has countered that those figures are too high, both in the number of workers that might be affected and the degree of decline in wages.
Starke said it was impossible to know for sure whether the unions and the company were truly digging in for a final confrontation or simply posturing.
“But this much I know,” Starke said. “They both have their backs against the wall, and the room is full of gunpowder.”
Good riddance. Wonder Bread and Twinkies are about the worst things you can put in your body.
The former often leads to the latter.
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