Interstate Bakeries Corp. and the Teamsters union ended their standoff over a new union contract, allowing the bankrupt maker of Hostess Twinkies to reorganize with financial backing from buyout firm Ripplewood Holdings.
Lawyers for Interstate announced the deal Friday in U.S. Bankruptcy Court in Kansas City, Mo.
Under the proposed reorganization, Ripplewood and hedge fund manager Silver Point Finance would invest in Interstate, and the Teamsters would accept a series of concessions that would save the snack maker from liquidation.
Interstate and the Teamsters, the Kansas City-based company’s biggest union, had been in a stalemate since last year, when talks halted on a new contract. The standoff killed a reorganization plan by Chief Executive Craig Jung designed to bring in $400 million from Silver Point.
“We have today achieved the framework for the way out of Chapter 11,” company lawyer J. Eric Ivester said in court. Details of the agreement with Ripplewood and Silver Point will be filed with the court in the next few days, he said.
Under the deal, an affiliate of Ripplewood will invest $130 million in Interstate in exchange for an ownership stake, company spokesman Lewis Phelps said. Silver Point, Monarch Alternative Capital and McDonnell Investment Management will lend the company $339 million, according to a statement.
After the reorganization is complete, John Cahill and Greg Murphy, industrial partners of Ripplewood, would serve on Interstate’s board of directors.
Cahill previously was chairman and chief executive of the Pepsi Bottling Group and Murphy was chief executive of Kraft Food Bakery Cos.
The Teamsters union, which represents about 8,500 of Interstate’s 22,000 employees, fought Jung’s plan because it would have separated the duties of many drivers. Some drivers would only deliver goods, while others would concentrate exclusively on sales.
Currently, drivers do both and are paid commissions based on their success.
Teamsters lawyer Frederick Perillo said Jung’s proposal wasn’t part of the new agreement among Ripplewood, Silver Point, Interstate and the union. The new proposed Teamsters contract includes concessions “designed to save the company money,” he said.
Ripplewood is the second investment firm the Teamsters has persuaded to consider investing in Interstate. Yucaipa Cos., the Los Angeles-based investment firm of supermarket billionaire Ron Burkle, worked with the Teamsters for months last year, then failed to file a reorganization proposal after Mexican baker Grupo Bimbo pulled out of the joint effort.
Interstate appeared in Bankruptcy Court on Friday to ask Judge Jerry W. Venters to increase its borrowing limit by $79 million to $329 million. Venters approved the increase, which the company said in court papers was necessary to give it time to rewrite its reorganization plan.
Interstate, which also makes Wonder Bread and Hostess snacks such as Ding Dongs and Sno Balls, has spent four years in bankruptcy. The company threatened to sell itself in pieces earlier this year when it failed to persuade the Teamsters to accept new work rules. The union said it would rather see Interstate liquidated than accept Jung’s previous plan.