Could This Be the End of the Twinkie?

Sept. 18, 2007 — -- The maker of Hostess Twinkies, Wonder bread, Drake's coffee cakes and other edibles has threatened to shut down if it's unable to win major concessions from its 20,000 union workers soon.

Interstate Bakeries Corp., which has been under Chapter 11 bankruptcy protection since September 2004, said in a U.S. Bankruptcy Court filing late last week that if it can't get such concessions it will be forced to liquidate.

The threat of a breakup or liquidation is real, said Kevin Starke, an analyst with Weeden & Co. The baker has constantly sought extensions of its plans to reorganize the company. He said the wording in this filing sends a clear message that the company doesn't want to delay anymore.

Starke said that Interstate has never had a problem baking its products, but had a distribution problem. Because the company was cobbled together through several acquisitions, Starke said, it doesn't have streamlined operations. For instance, there are more than 400 collective bargaining agreements.

If a sale — or multiple sales of various units — was to happen, it's likely that the buyer would continue to produce Twinkies and other Interstate products, which have great name recognition.

Interstate was hurt by the popularity of low-carb diet plans such as Atkins and South Beach, which cut into its sales of white bread and snack cakes. But it also had deeper problems. The company has not seen growth in years and was unable to keep up with escalating salary and health-care costs, while ultimately led it into bankruptcy.

The company's two main unions are the Teamsters, whose members sell and deliver its goods, and the Bakery Workers, who bake and package the products.

Interstate said some of the lenders had given it until Sept. 30 to get concessions.

The Kansas City, Mo.-based company has 45 commercial bakeries, 650 distribution centers and 800 bakery outlets across the country, according to Hoover's, a business information provider.

Interstate, which is expected to have $2.9 billion in sales this year, employed 25,000 people in 2006, according to Hoover's.

Interstate sells its baked goods mostly to supermarkets, convenience stores and mass merchandisers. It acquired the Wonder and Hostess brands from rival Continental Baking in 1995.

As for the disappearance of Twinkies, Starke said don't fret. The brands are too well-known to disappear and might even increase presence under a new owner.

"The one thing that you can count on," he said, "is that you still see Twinkies on the shelves of supermarkets and convenience stores near you."