Phoenix Bankruptcy Law News

Hostess Offers Not-So-Sweet Deal to Unions

This week, Hostess Brands extended its final offer to the unions representing nearly half of the company's workers, CNBC reports.

The deal would allow Hostess to exit bankruptcy by cutting about $200 million in costs. In order to make the offer possible, advisors involved in the deal forfeited about $60 million in transaction fees. However, the advisers aren't the only ones to suffer under the new offer.

Under the Hostess union deal, 8-percent wage cuts will be implemented across the entire company, including management. The cuts are expected to save the company $40 million, according to CNBC.

In addition, employee health plans will be cut by 17 percent. However, the biggest cuts will be to the multi-employer pension plans. Hostess wants to stop contributing to those plans until January 2015, after which it will contribute only a quarter of the amount it had contributed in the past. The pension cuts are expected to save the company about $75 million.

Hostess filed for Chapter 11 bankruptcy protection in January. Companies often file for Chapter 11 in order to restructure and become profitable again. In order to achieve profitability, debtor companies often merge with other companies, renegotiate their contracts, sell certain assets, and close off branches of the company.

On top of the cuts, Hostess is considering selling off its Merita bread brand in order to improve liquidity and cut costs. The company also warns that another round of layoffs may be on the horizon.

The Hostess union deal will require the approval of the International Brotherhood of Teamsters, a union that backs about 7,500 Hostess workers. In order for the deal to be implemented, Hostess will also need the approval of the Bakery, Confectionary, Tobacco Workers, and Frain Millers International unions.

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