Jones Day for Hostess, Simpson Thacher: Business of Law

By Elizabeth Amon – Nov 20, 2012 7:07 AM ET

The judge overseeing Hostess Brands Inc., while declining to approve the company’s liquidation, asked management and the bakers’ union to enter mediation today to resolve the strike that the maker of Twinkies and Wonder bread said forced it to shut. Hostess is being advised by Jones Day.

U.S. Bankruptcy Judge Robert Drain said yesterday at a hearing in White Plains, New York, that there are “serious questions as to the logic behind the decision to strike.” Hostess and the bakers’ union agreed to Drain’s request to enter confidential mediation under his supervision.

“To me, not to have gone through that step leaves a huge question mark over this case which I think will only be answered in litigation,” Drain said. “My desire to do this is prompted primarily by the potential loss of over 18,000 jobs, as well as my belief that there is a possibility to resolve this matter, notwithstanding the losses the debtors have incurred over the last week or so.”

Hostess hasn’t spoken with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union since August, said Heather Lennox, a partner at Jones Day working for the company. Hostess is seeking permission from Drain to pay bonuses to key managers while closing operations that will leave most of its 18,500 workers unemployed. Any agreement arising from the mediation would probably come too late to save the company, Lennox said.

“Things have gone too far to repair themselves under the current form,” Lennox, told Drain. “It would be very hard for us to recover from this damage even if there were to be an agreement in the near term.”

“Our best shot is to see what we can sell as going concerns and have the company continue that way,” she said. The hearing to consider Hostess’s request to wind down was postponed until Nov. 21.

Hostess said Nov. 16 that it would shut, claiming that a weeklong strike by the bakers’ union forced liquidation. The union blamed management’s concession demands, while some employees blamed both sides. Strikers were still outside the company’s facilities yesterday, Hostess’s lawyers said.

Corrina Christensen, a spokeswoman for the bakers’ union, didn’t immediately respond to an e-mail seeking comment on the mediation.

The judge may be creating risk for both sides that encourages them to reach a deal, Ken Russak, a bankruptcy attorney at Frandzel Robins Bloom & Csato in Los Angeles, said yesterday in an interview. “The bankruptcy judge would much prefer to have the parties work something out than having to make a decision in this highly charged environment,” Russak said.

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