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Interstate Bakeries

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Hostess Brands, Inc.
Company typePrivate
IndustryFood (bakery)
Founded1930 (1930)
DefunctNovember 21, 2012 (2012-11-21)
FateLiquidation in progress[1]
HeadquartersIrving, Texas, U.S.
Key people
Gregory F. Rayburn, CEO
ProductsBrands such as Wonder Bread (US only), Hostess, Nature's Pride, Merita, Home Pride, and Dolly Madison
Revenue$2.798 billion (2008)[2]
$143.68 million (2008)
Total equity$461.71 million (2008)
Websitewww.hostessbrands.com

Hostess Brands, Inc., established as Interstate Bakeries Corporation in 1930, is a wholesale baker and distributor of bakery products in the United States.[3] It is the owner of the Hostess, Wonder Bread, Nature's Pride, Dolly Madison, Butternut Breads, and Drake's brands.

For many years, it was based at 12 East Armour Boulevard, Kansas City, Missouri. In 2009, after it emerged from a 2004 bankruptcy, the name was changed to Hostess Brands, Inc., and the headquarters moved to Irving, Texas.[4] Hostess Brands, Inc., sought bankruptcy protection under Chapter 11, Title 11, United States Code again in January 2012.[5]

On November 16, 2012, the company filed a motion in United States Bankruptcy Court for the Southern District of New York in White Plains seeking permission to close its business and sell its assets. On November 21, 2012, the motion to close its business was accepted.[6]

History

Former headquarters on Armour Boulevard in Kansas City (later the operations center).
Former Interstate Bakeries logo

Interstate Bakeries Corporation (1930)

The company has its roots in the Nafziger Bakeries which were started by Ralph Leroy Nafziger in a church basement at 6th and Prospect Avenue in Kansas City in 1905. Nafziger expanded the bakeries and bought out competitors. In 1925 he sold Nafziger Bakeries to Purity Bakeries[7] (which in turn became American Bakeries). Using his fortune he acquired a controlling interest in Schulze Baking Company and its Butternut Bread brand.[8]

In 1930 he announced the formation Interstate Bakeries Corporation (IBC) with the merger of the Schulze Bakery with seven bakers under the umbrella of Western Bakeries of Los Angeles. At the time claimed to be the fifth largest baker in the United States.[9][10] The company was wholesaler selling Butternut bread loaves wrapped in gingham to grocery stores.[8]

Schulze and Western continued to operate as separate entities under the Interstate umbrella until 1937 when they were formally merged into the Interstate name.[11]

[12]

In 1943, it acquired Supreme Baking Company in Los Angeles. In 1950, it bought O'Rourke Baking Company of Buffalo, New York.

Butter-Nut bread package, 1930-1945

In the 1950s and early 1960s purchases included Ambrosia Cake Company, the Remar Baking Company, the Butter Cream Baking Company, Campbell-Sell Baking Company, the Kingston Cake Bakery, Cobb's Sunlit Bakery, Schall Tasty Baking Company, Sweetheart Bread Company, and Hart's Bakeries.[12]

In the late 1960s, it acquired Millbrook Bread, Baker Canning Company, Shawano Farms, Inc. and the Shawano Canning Company.[12]

Interstate Brands (1969)

In 1969, the company changed its name to Interstate Brands. Its signature brands were Butternut and Blue Seal breads, and Dolly Madison cakes. Butternut Breads was a manufacturer of bread products that had been in business since 1902.[12]

DPF (1975)

In 1975, Interstate was acquired by Data Processing Financial and General Corporation, known as DPF, a computer leasing company that had run into difficulties during the IBM antitrust battles, which changed pricing for IBM hardware. As a result, DPF was interested in changing business models, and using its cash to take over a low-tech company. The merged company, with headquarters in Hartsdale, New York, took the name "DPF" while it continued the divestiture of the remaining technology assets. While operating as DPF, the company invested heavily in its plants and also acquired Silver Loaf Baking Company, Eddy Bakeries, and Mrs. Cubbison's Foods, Inc.[12]

Interstate Bakeries (1981)

In 1981, DPF completed the sale of its remaining computer systems and changed the company name back to its original Interstate Bakeries. Interstates headquarters moved back to Kansas City.[12]

In 1986, the company acquired Purity Baking Company and Stewart Sandwiches, followed in 1987 by Landshire Food Products.[12]

IBC Holdings (1987)

In 1987, management took the company private, changing the name to IBC Holdings. IBC bought the Merita/Cotton's Bakeries division of the American Bakeries Company.[12]

Interstate Bakeries (1991)

In 1991, the private company changed back to publicly traded company, changing its name back to Interstate Bakeries.[12]

Continental Baking merger (1995)

In January 1995, Interstate acquired Continental Baking Company, from Ralston Purina, for US$330 million and 16.9 million shares of Interstate stock. Continental had acquired Taggart Bakeries, of Indianapolis, Indiana, in 1925,[13] and brought Taggart's original creations Wonder Bread and Hostess brands – amongst others – to Interstate. Taggart had created Hostess in 1921, which concentrated on cakes like the Twinkies, Ding Dong and Ho Hos which were created during Continental's ownership.[14]

During this time, the merged company also bought San Francisco French Bread Company, John J. Nissen Baking Company, Drake's, and My Bread Company.[12]

With the merger, Interstate now held two major national bread divisions – Butternut and Wonder Bread. The two divisions operated with different cultures: Butternut was unregimented and each bakery was a self-contained profit center; Wonder Bread was very "procedural and by-the-book." This caused some problems early on. In both cultures, snack cakes were more profitable due to economy of scale and logistics. When extended-shelf-life enzymes were developed for bread, the hope was to convert the system of many small inefficient bakeries into an efficient network of a relatively few giant bakeries like their snack cakes operation. However, the recipe using the new enzymes caused the bread to have a different taste and texture,[15] and other market forces like a resurrection of the Atkins diet and competitor Krispy Kreme doughnuts affected pricing and sales volume.

Bankruptcy (2004)

On September 22, 2004, Interstate Bakeries filed for Chapter 11 bankruptcy. The company also named a new chief executive, Tony Alvarez. Interstate Bakery's stock, which had been at one time $34/share, fell to $2.05/share as they declared bankruptcy. At the time it was the longest bankruptcy in U.S. history. During bankruptcy, Interstate fought a 2007 bid from Mexican baked goods giant Grupo Bimbo and Ron Burkle of the Yucaipa Companies.[16]

With the leadership of Craig Jung, the company emerged from bankruptcy as a private company on February 3, 2009.[17] The plan included a 50 percent equity stake by Ripplewood Holdings and lines/loans by General Electric Capital and GE Capital Markets, Silver Point Finance and Monarch Master Funding. Interstate's union workers made contract concessions in exchange for equity.[18]

During the 2004–2009 bankruptcy period, Interstate closed nine of its 54 bakeries and more than 300 outlet stores. Interstate's work force declined from 32,000 to 22,000 employees. The company also dropped some regional brands and operating agreements, such as the agreement to produce Sunbeam Bread for the northeastern U.S. (now produced by LePage Bakeries of Auburn, Maine).[18]

Hostess Brands, Inc. (2009)

Effective November 2, 2009, IBC was renamed Hostess Brands, Inc. after the cake division that featured Twinkies and cupcakes. Hostess Brands continued its bread lines, including Wonder Bread.[19] The company's subsidiaries, such as Interstate Brands Corporation, and IBC Sales Corporation, continued to display their name and logo on products from Hostess Brands.

Bankruptcy and liquidation (2012)

By December 2011, it was reported that Hostess Brands was on the verge of filing for bankruptcy a second time due to financial problems. The company stopped paying future pension benefits after August, thereby breaking its union contracts.[20] According to a Hostess worker at the time, "We understand that, should we pursue some form of legal action to require the company to live up to the terms of the contract, they may close, but we have come to believe that they will close anyway. We believe the company is poorly managed and the only hope is a complete change in management."[20]

On January 10, 2012, Hostess Brands filed for Chapter 11 Bankruptcy for the second time. In a statement in its filing, the company said it "is not competitive, primarily due to legacy pension and medical benefit obligations and restrictive work rules." The company said it employs 19,000 people and carries more than $860 million in debt. The company said it would continue to operate with $75 million debtor-in-possession financing from Monarch Alternative Capital, Silver Point Capital and other investors.[5]

In March 2012, Brian Driscoll resigned from his position as CEO.[21] Gregory F. Rayburn, who had been hired and named Chief Restructuring Officer only nine days earlier, assumed the leadership position. Fortune reported that unions within the organization had been unhappy with Driscoll's proposed compensation package of $1.5 million, plus cash incentives and a $1.95 million "long term compensation" package. Additionally, the court had discovered that Hostess executives had received raises of up to 80% the year prior. In an effort to restore relations, Rayburn cut the salaries of the four top Hostess executives to $1, to be restored by January 1 (or earlier) of the following year.[22]

In July 2012, the New York Post reported that negotiations (led by Silver Point Capital) with the Teamsters Union were close to a possible agreement that could allow Hostess Brands to cut employee pay and benefits, if the company maintained funding of existing pension plans.[23] In May, all 19,000 workers had been warned (as required by the Worker Adjustment and Retraining Notification Act) that they could face a mass layoff. In an email to the Appeal-Democrat Hostess spokesman Erik Halvorson said that the May notices were to alert employees to possible sale or wind down of the company, but that "our goal is still to emerge from bankruptcy as a growing company with a strong future."[24] These layoff notices listed the dates as July 7–21, but on July 5 another company spokesman told the Financial News & Daily Record that there were no immediate plans to start laying off Hostess employees.[25]

In November 2012, Hostess employees nationwide went on strike. The Bakery, Confectionery, Tobacco Workers and Grain Millers' International Union (BCTGM), which represents 6,600 Hostess employees, took the strike action after the latest contract proposal from Hostess Brands was rejected by 92 percent of its members.[26]

On November 16, 2012, Hostess announced that it was ceasing plant operations and laying off most of its 18,500 employees. It stated that it intended to sell off all of its assets, including the well known brand names, and liquidate.[27][28] The CEO, Gregory Rayburn, stated, "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."[29][30]

Additionally, a press release was issued by the BCTGM International Union on the same day which stated in part, “When a highly-respected financial consultant, hired by Hostess, determined earlier this year that the company’s business plan to exit bankruptcy was guaranteed to fail because it left the company with unsustainable debt levels, our members knew that the massive wage and benefit concessions the company was demanding would go straight to Wall Street investors and not back into the company."[31]

According to CEO Gregory Rayburn, several potential buyers have expressed interest in acquiring the Hostess brand.[32] On November 21, 2012, Judge Robert Drain gave Hostess final clearance to close.[6] In approving the plan Drain ruled against U.S. Trustee for the Southern District Tracy Hope Davis's motion to convert the bankruptcy into a Chapter 7 bankruptcy where a bankruptcy trustee would be appointed to oversee the liquidation. Davis objected to provisions that would grant bonuses to insiders and cherry-pick which administrative claims get paid."[33] By rejecting the filing Drain left Rayburn in charge of the liquidation. Drain said having a trustee "would be a disaster." Hostess had argued that its assets would devalue if the company had to wait for a trustee to get up to speed on the running of the company.[34]

The liquidation plan of Hostess Brands was finalized by a federal bankruptcy judge on November 29, 2012.[35][36][37]

Brands

Hostess owns the following brands in the United States:

See also

References

  1. ^ "Hostess Brands is Closed". Hostessbrands.com. Retrieved November 21, 2012.
  2. ^ "Stock market quotes, news, currency conversions & more". Google Finance. Retrieved January 11, 2012.
  3. ^ "Hostess Brands is Closed". Hostess Brands. November 16, 2012. Archived from the original on November 17, 2012.
  4. ^ "IBC moving headquarters to Dallas" Kansas City Star — February 17, 2009
  5. ^ a b Palank, Jacqueline (January 12, 2012). "Twinkies Maker Hostess Files for Chapter 11 Protection". The Wall Street Journal. Retrieved January 11, 2012.
  6. ^ a b Isidore, Chris; O'Toole, James (November 21, 2012). "Hostess closing OK'd by judge". CNN Money. Retrieved November 21, 2012.
  7. ^ "Combination in the American Bread-Baking Industry: With Some Observations on ... - Combination in the American Bread-Baking Industry - Google Books". Books.google.com. December 1, 1924. Retrieved November 23, 2012.
  8. ^ a b Hogan, Greg. "Twinkies Wrapped in Pantyhose". Hostess. Retrieved November 17, 2012.
  9. ^ [Displaying Abstract] (June 10, 2012). "TO OFFER 23,141 SHARES. - Interstate Bakeries to Market Issue of Preferred at $96. - Article - New York Times". New York Times. Retrieved November 23, 2012.
  10. ^ Reading Eagle - March 31, 1930
  11. ^ [Displaying Abstract] (June 10, 2012). "BAKERY MERGER NEARS - Plans to Consolidate Interstate and Schulze Concerns Made - Article - New York Times". New York Times. Retrieved November 23, 2012.
  12. ^ a b c d e f g h i j International Directory of Company Histories, Vol. 38. St. James Press, 2001 (via fundingverse.com)
  13. ^ Ament, Phil. "Wonder Bread History - Invention of Wonder Bread". Ideafinder.com. Retrieved November 16, 2012.
  14. ^ "Continental Baking Co. - Lehman Brothers Collection". Library.hbs.edu. March 1, 1980. Retrieved November 16, 2012.
  15. ^ Adamy, Janet (September 23, 2004). "Half a Loaf At Giant Baker, Freshness Project Takes Sour Turn", The Wall Street Journal. via Mindfully.org
  16. ^ Gara, Antoine (September 12, 2012). "Union to Lose Big in Hostess Bankruptcy (Update 1)". TheStreet. Retrieved November 16, 2012.
  17. ^ Interstate Bakeries emerges from bankruptcy", Business Courier of Cincinnati — February 4, 2009
  18. ^ a b "Interstate Bakeries' post-bankruptcy funding appears in trouble" Kansas City Star — January 8, 2009
  19. ^ "IBC to Change Name to Hostess Brands, Inc". Reuters. November 2, 2009. Retrieved January 11, 2012.
  20. ^ a b "Hostess Brands Bankruptcy Eyed". New York Post. December 22, 2011.
  21. ^ Kosman, Josh (May 9, 2012). "Hostess CEO resigns, fueling speculation of baker's liquidation". New York Post. Retrieved November 15, 2012.
  22. ^ Kaplan, David (July 26, 2012). "Hostess is bankrupt... again". Fortune. Retrieved November 15, 2012.
  23. ^ Kosman, Josh (July 2, 2012). "Skinny on cake talks". New York Post. Retrieved July 7, 2012. Cuts for Hostess workers
  24. ^ Gebb, Ashley (July 4, 2012). "Thirteen jobs at risk at Yuba City Hostess outlet". Appeal-Democrat. Retrieved July 7, 2012. We are simply fulfilling our requirements by sending these notices.
  25. ^ Mathis, Karen Brune (July 6, 2012). "Hostess: No immediate plans for employee layoffs". Financial News & Daily Record. Retrieved July 7, 2012. The goal is to restructure Hostess and come out of Chapter 11 as a stronger company.
  26. ^ Benson, Lisa (November 10, 2012). "Hostess Brand workers hit the picket lines". KSHB-TV. Retrieved November 10, 2012.
  27. ^ "Hostess Brands closing for good". Movieweb. November 16, 2012. Retrieved November 16, 2012.
  28. ^ "Twinkie Maker Hostess to Close". The Wall Street Journal. November 16, 2012. Retrieved November 16, 2012.
  29. ^ Phil Milford, Dawn McCarty and Bill Rochelle (November 16, 2012). "Twinkie Maker Hostess to Shut Down After Strike". Bloomberg. Retrieved November 16, 2012.
  30. ^ "Hostess Brands Liquidation: Twinkie-Maker Seeks Court Permission To Liquidate". Huffington Post. November 16, 2012. Retrieved November 16, 2012.
  31. ^ HOSTESS DEMISE A DECADE IN THE MAKING(pdf) BCTGM International Union. Retrieved: 19 November 2012.
  32. ^ "Twinkies May Find Buyer, Hostess CEO Says". ABC News. November 19, 2012. Retrieved November 20, 2012.
  33. ^ Hoffman, Constantine (November 20, 2012). "Hope for Twinkies as Hostess, union go to mediation". CBS Moneywatch. Retrieved November 26, 2012.
  34. ^ McCarty, Dawn. "Hostess begins firings as competitors eye brands". November 26, 2012. Retrieved November 26, 2012.
  35. ^ O'Toole, James (November 30, 2012). "Judge OK's Bonuses for Execs in Hostess Liquidation". Chicago Defender. Retrieved November 30, 2012.
  36. ^ "Hostess says it has over 100 interested buyers". CBS News. November 29, 2012. Retrieved November 30, 2012.
  37. ^ Russell, Michelle (November 30, 2012). "US: Hostess Brands receives 110 potential bids". Just-Food. Retrieved November 30, 2012.
  38. ^ a b c Clemens, Scott. "The Rise Of San Francisco Sourdough". Epicurean.com. Retrieved November 18, 2012.
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