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Friday, March 29, 2024

Stock up on Twinkies – Hostess Files for Bankruptcy

Courtesy of Benzinga.

Could this be the end of an era? Could it be that the company responsible for creating all-American snack cakes like Twinkies, Ding Dongs and Ho Hos is about to disappear into the ether?

Well, possibly. The privately held Hostess Brands filed for Chapter 11 bankruptcy protection on Wednesday as it seeks a buyer to pull it out of the mire.

According to CNN Money, the situation at Hostess is up in the air and nobody would confirm or deny whether jobs would be lost, although that does seem inevitable as things stand.

Hostess currently employs approximately 19,000 full-time and part-time employees , a number which includes 10,413 hourly workers and 8,436 salaried employees, according to the court filing. 83 percent of that number are union members.

“The employees have been witness to the closing or sale of several operations within the debtors’ business as well as company-wide layoffs or reductions in force,” the court document said. “The increase pressures on the employees, together with layoffs and general concern about the welfare of the debtors, have led to a decline in employee morale.”

The end of Hostess products would be a terrible shame. More, it would spell the end of one corner of American culture. The Twinkie alone is a national institution, inspiring masses of memorable movie moments. From Chunk craftily sucking the cream out of Twinkies in the stores in The Goonies, to Harold Ramis and Bill Murray using a Twinkie to describe the end of the world in Ghostbusters, to Woody Harrelson desperately searching for the Holy Grail Twinkie in a post-zombie apocalypse world in Zombieland, the Twinkie has become as American as apple pie, baseball and Leave it to Beaver.

Sadly, pop culture references do not equal dollar signs, or at least not in the long run. Hostess claims that it pays $63.2 million to its employees each pay period, and it currently owes them $21 million. That’s a lot of ding dongs.

Hostess also claims to owe its creditors more than $1 billion. That number is spread across 50,000 to 100,000 creditors, including pension funds.

The largest claim, according to CNN, is from the Bakery & Confectionary Union & International Pension Fund, standing at $994 million. The next largest is significantly smaller but still a huge $12 million, owed to Central States, Southeast and Southwest Areas Pension Plan.

So who, if anyone, might be interested in buying Hostess? Kraft Foods (NYSE: KFT) make the Oreo cookie so it seems an obvious choice. Campbell Soup (NYSE: CPB) and Pepperidge Farm are also being mentioned. However, with Hostess so severely in debt, it is far from a foregone conclusion that anyone will want to take the risk.

On the plus side, any buyer will be getting, not just an established brand, but a little piece of America. This proud land, in the form of a cake, filled with a synthetic cream-like product. Who could say no to that?

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ACTION ITEMS:

Bullish:
Traders who believe that Hostess will survive might want to consider the following trades:

  • Keep an eye on Kraft. It might be tempted by a company that is traditionally a giant. A bit of savvy and Kraft could make Hostess Brands rise again.
  • Campbell Soup could also drive it forward.
  • Pepperidge farm makes a good cookie, but would Hostess be a stretch too far?

Bearish:
Traders who believe that the public does not want these fake cakes anymore may consider alternative positions:

  • Any healthier food companies.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.


For more Benzinga, visit Benzinga Professional Service, Value Investor, and Stocks Under $5.

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