American Culture

It’s all sweetness and light (creamy filling) until Hostess closes the doors. Or is it?

Hostess VanAs with most things the mainstream media gets hold of, there’s more to the Hostess story than meets the eye. A quick scan of headlines will give the impression that striking bakers have cost all Hostess employees their jobs. A check on liberal sensibilities would indicate that it’s the greedy bastards at the top. But what really happened? Was it death by vulture capitalists? Or death by union thugs?

To hear Hostess Brands tell it, it’s union thugs:

We are sorry to announce that Hostess Brands, Inc. has been forced by a Bakers Union strike to shut down all operations and sell all company assets.


The Board of Directors authorized the wind down of Hostess Brands to preserve and maximize the value of the estate after one of the Company’s largest unions, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM), initiated a nationwide strike that crippled the Company’s ability to produce and deliver products at multiple facilities.

On Nov. 12, Hostess Brands permanently closed three plants as a result of the work stoppage. On Nov. 14, the Company announced it would be forced to liquidate if sufficient employees did not return to work to restore normal operations by 5 p.m., EST p.m., Nov. 15. The Company determined on the night of Nov. 15 that an insufficient number of employees had returned to work to enable the restoration of normal operations.

The BCTGM in September rejected a last, best and final offer from Hostess Brands designed to lower costs so that the Company could attract new financing and emerge from Chapter 11. Hostess Brands then received Court authority on Oct. 3 to unilaterally impose changes to the BCTGM’s collective bargaining agreements.

Hostess Brands is unprofitable under its current cost structure, much of which is determined by union wages and pension costs. The offer to the BCTGM included wage, benefit and work rule concessions but also gave Hostess Brands’ 12 unions a 25 percent ownership stake in the company, representation on its Board of Directors and $100 million in reorganized Hostess Brands’ debt.

On the other hand, according to BCTGM President, Frank Hurt:

Hostess failed because its six management teams over the last eight years were unable to make it a profitable, successful business enterprise. Despite a commitment from the company after the first bankruptcy that the resources derived from the workers’ concessions would be plowed back into the company, this never materialized. Management refused to invest in modernizing its bakeries or devote necessary resources to advertising and marketing, product development and new technology. Business plan after business plan failed, leaving the company ever deeper in debt.

When a highly-respected financial consultant, hired by Hostess, determined earlier this year that the company’s business plan to exit bankruptcy was guaranteed to fail because it left the company with unsustainable debt levels, our members knew that the massive wage and benefit concessions the company was demanding would go straight to Wall Street investors and not back into the company.

Our members were aware that while the company was descending into bankruptcy and demanding deep concessions, the top ten executives of the company were rewarding themselves with lavish compensation increases, with the then CEO receiving a 300 percent increase.

The problem with claims like the foregoing from both sides is in the way they oversimplify the situation from the perspective of their vested interests.

Abby Zimet, in On Twinkies, Ho Hos, Hedge Funds and Greed paints a more complex picture in a few brief strokes:

But the company has a long history of financial instability and ownership changes, including two earlier bankruptcies. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union blames greed by Wall Street hedge funds that had taken over control, unreasonable demands including wage and benefit cuts of up to 30% even as top executives got large pay increases, and a decade of gross mismanagement by a company that had already gone through six CEOs in eight years. Changing tastes, too, played a part.

For a more detailed picture of the nuts and bolts, one may wish to consult John Carney’s How Hostess Failed: Hedge Funds Vs. Unions at Business Insider.

Early into the article, it may seem the culprits are quickly and readily identified:

Only Silver Point and Monarch could have kept Hostess out of liquidation and kept the Twinkie bakery ovens firing. But they were, ultimately, unable to reach a deal with the unions that represents the workers who make and deliver products like Twinkies, Wonderbread and Ding Dongs. Without large union concessions—what some would say, total union capitulation—the hedge funds decided Hostess would have to die.

Near the end of the article, Carney states,

Silver Point and Monarch—as well as the other secured creditors—will realize some value for their investment in the company, although certainly far less than they had hoped. (But, since we don’t know how much they spent on the debt, we may never know whether they gained or lost on the deal.)

On that basis, it would be anyone’s guess whether the lenders were just mitigating losses or cutting out while there was still any money to be had. Thankfully, Carney recommends a piece at Forbes that sheds even more glaring light on the backroom donnybrook leading up to Hostess’ demise.

In that article, Hostess is Bankrupt … Again, by David Kaplan, Kaplan describes the situation thusly:

The company was going to pieces — again — and Hostess filed for Chapter 11 protection — again — in January of this year. This time, though, the moneymen were no longer on the same page. As the majority equity holder, Ripplewood badly wanted to keep Hostess out of bankruptcy. It pleaded with the lenders to show flexibility, but they were not so inclined. They lenders held superior fiscal hands and had less downside if Hostess failed. In the event of a bankruptcy, given all the assets Hostess owned, the lenders would still walk away with millions.

Faced with this situation, the Teamsters eventually capitulated and asked BCTGM to do the same. BCTGM wasn’t having any of it. According to the new deal offered, employees would take an 8% pay cut, followed by modest wage increases over time (although not totaling 8%), as well as cuts in benefits. As the various articles have framed it, BCTGM saw this, especially in the face of “looting” by top executives who received substantial (shall we say, “obscene”) raises, as just one slap in the face too many and stuck to their guns. They maintained the strike. The lenders didn’t blink.

Hindsight is a bitch sometimes, especially now that 18,000+ workers are out of work, in part thanks to corporate mismanagement, in part to weakening demand, in part to the vagaries of a sour economy that saw raw material prices rise, in part to obstinate union negotiators, and in part to the BCTGM strikers that kept up the picket. And for what?

Wage information for the bakers is hard to come by. The best estimate I could find is somewhere between $14 and $20 per hour. For the sake of somewhat easy math, let’s say $20 (and for now, forget the cuts to benefits, such as cuts to the employer contribution for health care). 8% of $20 is $1.60. $20/hour wages would thus drop to $18.40/hour. For the individual, that would amount to $3,328 (gross) less per year (or $277/month). Tack on higher deductions for their increased share of insurance and sure, that would hurt. Step back and look at the estimated big picture, however, and that $3,328/year X 18,000 employees represents just under $60M saved for the company per year.

I can see how the bakers would take that as a grave insult, especially when executives are pulling in six and seven figures after their grotesque raises. I can understand even moreso when those executive raises hardly seem earned, given the failing history of the operation. I know I would like to see my salary double or triple were I to suck at my job. It would be nice to make $60,000 a year.

Oh, there’s the bitterness. And you thought I was holding back. On the one hand, I applaud labor for standing up for its principles. On the other, while I’m more than happy to heap condemnation on the management and on the vultures for structuring a deal that only they could conceivably win (or afford to lose), I must confess I’m a bit miffed at the bakers. 18,000+ jobs were lost for the narrow interests of less than a third of them, because they couldn’t fathom making it on $6/hour more than many of us, myself included, take in.

As for where I got my wage info, here. If you really want to see some verbal elbows getting thrown, I recommend it. Definitely NSFW. It’s also not safe for any simple, preconceived notions as to what went wrong at Hostess. There are claims that union thugs brought the company down. In essence, that’s too simple to be true. At the same time, in the heat of verbal battle, there are many cries from “seeming” union members much to the effect of, “let the company fall.” I can’t verify that the comments are actually from union members, but it does look damning when some of the picketers may very well have felt that way.

In other news, Rush is still a blithering idiot, but his detractor at PoliticusUSA only gets it half right.  The Teamsters capitulated. The bakers, on the other hand? Well, suffice to say that, in light of this story, we can’t just lump all unions together as one homogeneous force with which to reckon.


Image credit: Photo of Hostess van by Ezra Wolfe, licensed under Creative Commons.

2 replies »

  1. While Hostess Management blames the company’s demise on, what they claim to be, the greedy unions, and the public attributes their disaster to the overly consistent unchanging product line, or just merely to inevitable creative destruction…

    The real question and concern causing toothaches across the globe is: when the economy crashes and the workers (who were promised a solid middle class lifestyle) find themselves left behind, where do they find economic salvation ? Or in the end is it just the Big Boss Execs’ who have a golden ticket out of the mess, while the rest are left to race to the empty market shelves?

  2. There is the bigger picture. Just how much more do U.S. workers–those left working, anyway–have to give so that hedge fund managers and corporate big wigs can make very large profits. The trend is ever downward for wages of U.S. workers and trend is ever upward for investors and managers. And with Hostess, we’re actually seeing the loss of 18,000 jobs so that profits can be made by a few. When will this stop?

    I never lied Wonderbread anyway. I think it came out in the 1960s and it looked like a sponge from day one.