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.