U.S. Bankruptcy Judge Robert Drain in White Plains, New York, authorized current management, led by restructuring specialist Gregory Rayburn, to immediately begin efforts to wind down the 82-year-old company, a process expected to take one year.

"It appears clear to me that the debtors have taken the right course in seeking to implement the wind-down plan as promptly as possible," Drain said near the end of a four-hour hearing.

The judge authorized Hostess to begin the liquidation process one day after his last-ditch mediation effort between the Irving, Texas-based company and its striking bakers' union broke down. Drain said details of those talks are confidential.

Rayburn told the judge that about 15,000 workers will lose their jobs immediately. Most of the remaining 3,200 will no longer be employed after about four months.

"This is a tragedy, and we're well aware of it," Heather Lennox, a lawyer for Hostess, told the judge. "We are trying to be as sensitive as we can possibly be under the circumstances to the human cost."

The union, the Bakery, Confectionery, Tobacco and Grain Millers Union, has complained it should not be forced into new wage and benefit cuts, on top of earlier give-backs, while top executives rewarded themselves with higher pay, and that it was "well aware" of the potential consequences of that stance.

The union said in a court filing that its sole objective was to leave Hostess with "a real, rather than an illusory or theoretical, likelihood of establishing a stable business with secure jobs."

Union president Frank Hurt was not immediately available for comment.

Hostess has about 36 plants, including three it decided to close after the strike began, as well as 565 distribution centers and 570 bakery outlet stores.

Speaking to reporters outside the courthouse, Rayburn said he was disappointed that the mediation failed and that he plans to move "extremely fast" to sell Hostess' assets. Asked which bidders may fare best, he said: "The one that pays the most."

ICONIC BRANDS

Lennox said Hostess has received a "flood of inquiries" from potential buyers for several brands that could be sold at auction and expects initial bidders within a few weeks.

Joshua Scherer, a partner at Perella Weinberg Partners, which is advising Hostess, said the company was in "active dialogue" over its Drake's brand with one "very interested" party that had toured a New Jersey plant on Tuesday.

He said regional bakeries, national rivals, private equity firms and others have also expressed interest in various brands and that more than 50 nondisclosure agreements have been signed.

"These are iconic brands that people love," Scherer said.

While prospective buyers were not identified at the hearing, bankers have said rivals, including Flowers Foods Inc (FLO.N) and Mexico's Grupo Bimbo SAB de CV (BIMBOA.MX) were likely to be interested in some of the brands.

Representatives of both companies did not immediately respond on Wednesday to requests for comment.

Scherer said Hostess could be worth $2.3 billion to $2.4 billion in a normal bankruptcy, an amount equal to its annual revenue. It also has about $900 million of secured debt and faces up to about $150 million of administrative claims.

Scherer expects a discount in this case because plants have already been closed and Hostess' value could fall further if the liquidation were dragged out.

"I've had buyers tell me, 'Josh, the longer it takes ... the less value I'm going to be able to pay you,'" he said.

"BEST" OUTCOME FOR FIRED EMPLOYEES

At Wednesday's hearing, Drain addressed a variety of objections to Hostess' plan, and rejected a request to convert its Chapter 11 case to a Chapter 7 liquidation and substitute a trustee for current management to conduct asset sales.

Drain called that proposal a "disaster for all concerned," saying "very quick and nimble movement" is needed to sell assets before they lose value and fearing delays if a trustee were brought in to start from scratch. He also said existing management had behaved as a "true fiduciary."

Hostess decided to liquidate on November 16, saying it was losing about $1 million per day after the Bakery, Confectionery, Tobacco and Grain Millers Union, representing close to one-third of its workers, went on strike a week earlier.

The bakers union walked out after Drain authorized Hostess to impose pay and benefit cuts, which the International Brotherhood of Teamsters, Hostess' largest union, had accepted.

Many of the 3,200 workers expected to stay on will help shut Hostess' properties and prepare them for sale. Hostess expects to need only about 200 employees by late March.

Rayburn, a former chief restructuring officer for the bankrupt phone company WorldCom Inc, said letting 15,000 workers go helps preserve their ability to obtain unemployment benefits.

"I need to maximize the value of the estate, but I need to do the best I can for my employees," he said at the hearing.

Hostess filed for Chapter 11 protection on January 11, its second bankruptcy filing in less than three years.

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

(Additional reporting by Adam Kerlin and Peter Rudegeair in White Plains, New York; Editing by Gerald E. McCormick, Dan Grebler, Andrew Hay and Andre Grenon)

• A Permanent Economic Emergency