It seems almost unimaginable for Hostess Brands to be going out of business, but the company seems determined to receive court approval of its bankruptcy plans, which will cost the jobs of more than 18,000 workers.
Hostess is the maker of iconic brands like Twinkies, Ding Dongs, Wonder Bread and more. The company owns not only Wonder, but other snack brands like Drake's and Dolly Madison, as well as Home Pride and Nature’s Pride. A last-ditch effort by a judge to impose mediation between Hostess and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which went on strike earlier this month, appears to have failed.
This is the second time in a decade that the company has gone bankrupt, but this time, it appears to be nearing the end of its tether. Management failures are largely to blame for the company’s demise rather than the strike by the bakery union. The bakery union and Teamsters Union had given deep wage and benefit concessions in 2004, saving the company $110 million.
After emerging from bankruptcy under the ownership of a private equity firm and two hedge funds in 2009, the company still took on increasing levels of debt. It then asked the bakery union to accept another round of even deeper wage and benefit concessions, while increasing the then-CEO’s salary 300 percent and giving pay increases of between 35 and 80 percent to nine other top executives.
Workers are now being asked to accept an 8 percent pay cut and 17 percent of health care costs, although they would also receive a 25 percent ownership stake in the company and a $100 million note in reorganized Hostess Brands debt.
The company still hopes to give incentive bonuses to its top executives under its bankruptcy plan and to sell off its well-known brands. A number of suitors have already stepped forward, especially as Twinkies and other Hostess foods have become hot commodities in the past week, with buyers clearing them off grocery shelves and trying to auction them on eBay. With the company earning $2.5 billion in sales last year, the brands represent attractive acquisition targets.
The tragic part is the loss of over 18,000 jobs. One can only hope that whoever buys the brands also retains many of the workers who have decades of experience in producing some of the top-selling snacks in the country. The health food craze is not to blame for Hostess’s demise. It’s the constantly changing slate of executives who continued to saddle an otherwise successful company with high levels of debt and exorbitant salaries for only those at the top.
4 Comments
From what I understood, the union got two seats on the board if they took the deal. Unions seem to think they know better than management how to run a company, and yet, when they have the chance, they run away. Would that there was a way to hold management liable for their part of the failure. They, ofcourse, lhave their golden parachutes. They will still make their ludicrious salaries, and move on.
Posted by: rfresch | November 23, 2012 3:00 PM
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Wow. You're right - there was a failure in management. Since the unions owned 25% of the shares of this entity, they should have ponied up with some additional capital or bought out the other 75% before they went bankrupt. With 25% of the stock, the unions should have had a significant seat on the board. I've read some other reports (Holman Jenkins at WSJ, for example - on.wsj.com/Wy2Kog) which indicate that there were work rule issues with how the route drivers made deliveries and how contractors could be used to service small accounts. I'd like to see some analysis of Mr. Jenkins argument.
We all think the loss of jobs is horrible. The question is - when labor unions are owners, why do we not hold them responsible like we do other owners (e.g. private equity) and management? I don't think anyone here should be up for Canonization, but I think it's a weak argument to give the unions a "pass" when their fratricide killing of this deal caused this deal to fail. Owners make additional investments and cut their own salaries when times are tough. It's obvious that the Baker's Union thought their defined benefit pension payments were safer if Hostess liquidated, and the plan was bailed out by the PBGC instead of being paid by a functioning entity.
Is the Baker's Union playing hardball? Yes. Are they now in a position to organize the new plants, or make them unusable by someone who rejects their offer to organize workers? Yes. Will the new entity be saddled with legacy costs? No. Will the work rules Mr. Jenkins describes be passed on to whoever buys the assets of the company? That remains to be seen, but these outdated rules are more economically sustainable if the new entity doesn't have to pay the legacy costs associated with benefits like a defined benefit pension plan.
Sure, there's probably some greed involved here - by multiple parties. I think you're missing the point by giving the unions a complete pass here. If they can spend billions on elections, why can't they provide some debtor in possession financing, some mezzanine financing, or something to protect those jobs? Seems like nobody, including the unions, are looking out for the little guy here.
Posted by: bftcpa | November 21, 2012 11:08 AM
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Mr Editor in Chief
Why wouldn't the union take the deal. Vote their 25% ownership to replace the management and the Board of Directors, turn the company around, pay themselves back the $100 millon dollar note, and be in charge of their own future?
American Capitalism at its finest.
Posted by: Unknown | November 21, 2012 10:57 AM
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American capitalism at its finest...
Posted by: dcrouch | November 21, 2012 9:01 AM
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