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Failed talks with union spells end to Twinkie-maker Hostess

By Tom Hals

(Reuters) - Hostess Brands Inc will proceed with a plan to go out of business after the maker of Twinkie snack cakes said last-minute talks with striking workers broke down on Tuesday.

Hostess and its striking bakers union were pressed by New York Bankruptcy Judge Robert Drain into mediation to try to end the walkout and save the company and its 18,500 jobs. Drain acted as a mediator during the private talks.

Hostess, which also makes Wonder Bread and Drake's cakes, will ask Drain to approve a plan to begin a piece-meal lidquidation of the 82-year-old company. It has said that its operations were crippled by the bakers' strike and that winding down is the best way to preserve its dwindling cash.

Hostess plans no further comment prior to an 11 a.m. ET hearing on Wednesday.

A representative of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM), which went on strike November 9, did not immediately respond to a request for comment.

Ken Hall, the general secretary of the Teamsters, Hostess' largest union expressed disappointment at the failed talks. The Teamsters had accepted an 8 percent cut in wages in an attempt to save the company.

"This is a tragic outcome and our thoughts and prayers go out to all Teamster Hostess members and all Hostess employees," Hall said in a statement.

The BCTGM leaders have said they believe there are buyers prepared to bid for the company, and bankers and analysts expect the company's best-known brands to live on under a new owner or owners.

Bankers have said rivals including Flowers Foods and Mexico's Grupo Bimbo were very likely to be interested in parts, but not all of, the brands. Neither company could be reached for comment.

Private equity firms have also shown interest. Sun Capital Partners is interested in bidding for all of Hostess, according to a source familiar with Sun's plans, and Metropolous & Co is also interested, according to Daren Metropolous, a principal at the firm.

Officials at Sun did not respond to requests for comment.

Hostess runs 33 bakeries, 553 distribution centers, about 5,500 delivery routes and 527 bakery outlet stores throughout the United States. Bakery operations ceased last week, though product deliveries to stores continued in order to sell already-made products.

The company has blamed union wages and pension costs for contributing to its unprofitability. Hostess Chief Executive Gregory Rayburn has also said the company's labor contracts have deterred would-be bidders for the company and its assets.

In addition to its unionized workforce, analysts, bankers and restructuring experts have said that a fleet of inefficient and out-of-date factories has also eaten up costs. They have said some brands may be more valuable once they were separated from the factories and sold to non-union competitors.

The case is In re Hostess Brands Inc, U.S. Bankruptcy Court, Southern District of New York, No. 12-22052.

(Reporting by Tom Hals in Wilmington, Delaware and Martinne Geller in New York; Editing by Gary Hill, Tim Dobbyn, Richard Chang and Edwina Gibbs)

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