Judge Asks Hostess, Union to Agree to Mediation

Nov. 19, 2012— -- A bankruptcy judge asked Hostess Brands Inc., the maker of Wonder Bread and Twinkies, and its bakers' union to agree to mediation before the company liquidates, creating a possible life-line for about 18,000 jobs.

Hostess had requested Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., who is overseeing the company's bankruptcy, to be able to liquidate its assets after a dispute with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM).

But the judge was not ready to move forward with the liquidation yet.

"Many people, myself included, have serious questions as to the logic behind this strike," said Drain. "Not to have gone through that step leaves a huge question mark in this case."

If mediation on Tuesday afternoon is not successful, Hostess will likely request to move forward with the liquidiation on Wednesday.

A spokesman for Hostess declined to comment about the possible mediation. BCTGM did not immediately return a request for comment.

Hostess had announced on Friday that it will liquidate because not enough striking employees returned to work by a Thursday evening deadline set by the company. But on Monday, Gregory F. Rayburn, chief executive officer, told ABC News, "I think we'll find buyers."

A handful of companies had reportedly expressed interest in buying Hostess Brands, including private equity firm Sun Capital Partners Inc., based in Boca Raton. Sun Capital did not immediately return a request for comment.

"We deeply regret the necessity of today's decision, but we do not have the financial resources to weather an extended nationwide strike," Rayburn said in a statement on Friday. "Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders."

In Photos: Famous Hostess Products

Hostess said it will seek bankruptcy court permission to close its business and sell its assets, "including its iconic brands and facilities. Bakery operations have been suspended at all plants."

"The Board of Directors authorized the wind down of Hostess Brands to preserve and maximize the value of the estate after one of the Company's largest unions, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM), initiated a nationwide strike that crippled the Company's ability to produce and deliver products at multiple facilities," the company said in a statement.

"We simply do not have the financial resources to survive an ongoing national strike," Rayburn said in a statement Wednesday. "Therefore, if sufficient employees do not return to work by 5 p.m., EST, on Thursday to restore normal operations, we will be forced to immediately move to liquidate the entire company, which will result in the loss of nearly 18,000 jobs."

A 5 p.m. deadline came and went without workers returning on Thursday night.

The strikes began on Nov. 9, when the company imposed a contract that would cut workers' wages by 8 percent. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) said the contract would also cut benefits by 27 to 32 percent.

Hostess, which is privately owned by investment firms, has struggled in recent years with two bankruptcy filings. The company said it "has done everything in its power to pursue a reorganization of its business as a going concern, including spending the better part of 18 months negotiating with its key constituents to obtain a consensual agreement."

"It is now up to Hostess' BCTGM-represented employees and Frank Hurt, their international president, to decide if they want to call off the strike and save this company, or cause massive financial harm to thousands of employees and their families," Rayburn said.

"Hostess Brands is making a mockery of the labor relations system that has been in place for nearly 100 years," union president Hurt said in a statement earlier this week. "Our members are not just striking for themselves, but for all unionized workers across North America who are covered by collective bargaining agreements."

The union, which represents more than 80,000 industry workers, maintains that the company's policies will bring its members back to workplace standards of the 1950s.

The wind down means the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores throughout the United States, the company said.

Last Thursday, the Teamsters Union recommended that BCTGM vote by secret ballot over whether workers wanted to continue their strike.

The Teamsters said that the BCTGM members had previously voted "without complete information," with over 90 percent rejecting Hostess' contract offer.

The Teamsters warned that Hostess' Wednesday announcement that it would not be able to operate without the striking workers was "not an empty threat or a negotiating tactic, but the certain outcome if members of the BCTGM continue to strike."

"The BCTGM leaders are putting Teamster members in a horrible position – asking them to support a strike that will put them out of a job when they haven't even asked all their members to go on strike," the Teamsters said in a statement.

ABC News' David Wright and Alex Stone contributed to this report.