The howling has already begun from the mad partisans on the right. Cries of ‘union thuggery’ are ringing out in the blogosphere, certainly to reverberate out into the mainstream conservative media.
For those who like a few facts before passing judgment, it seemed like a good idea to put together a few highlights from the almost decade long struggle to save the iconic brand.
First, this is the second bankruptcy the company is going through. The first one, in 2004, led to significant concessions from all employees, and a loss of several plants, outlets, and about a third of the workforce. Turns out, that wasn’t enough.
Enter the ‘venture’ capitalists.
During the first bankruptcy, the company actually fought off several attempts to buy the company, instead turning over equity to several equity firms, many of whom, ironically, get their money from large pension funds. They managed to emerge from bankruptcy in 2009. Then things started to go downhill.
The company filed again this year, 2012, and continued to operate with $75 million more from the equity firms. They installed Gregory Rayburn as Chief Restructuring Officer, with a compensation package of $1.5 million, plus cash incentives and a $1.95 million “long term compensation” package. Rayburn’s company also was paid $120k per month in ‘fees’.
It was also discovered that immediately prior to filing bankruptcy in 2012, Hostess executives received raises up to 80%, despite having promised that all employees, including management, would share in the concessions necessary to keep the company afloat.
Then the company wanted more concessions from its employees. The unions refused the concessions but agreed not to strike, as long as they weren’t forced into a contract. Hostess went to a judge and forced the unions into a contract.
The entire time, Ripplewood, the major equity stakeholder, was charging the company a $3 million annual ‘management fee.’
The baker’s union, which is being blamed for the shut down, says that the latest offer from Hostess amounted to as much as a 32% reduction, on top of what they already conceded in the previous bankruptcy.
A route driver, who works 60 hour weeks, recently told the New York Post, “My take home pay for last week: $418.50. I was making $550. You’re a smart guy, you do the math.”
Hostess Brands — the maker of such iconic baked goods as Twinkies, Devil Dogs and Wonder Bread — announced Friday that it is asking a federal bankruptcy court for permission to close its operations, blaming a strike by bakers protesting a new contract imposed on them.
The closing will result in Hostess’ nearly 18,500 workers losing their jobs as the company shuts 33 bakeries and 565 distribution centers nationwide. The bakers’ union represents around 5,000.
http://finance.yahoo.com/news/hostess-brands-closing-good-due-122900935.html
In January 1995, Interstate acquired Continental Baking Company, from Ralston Purina, for US$330 million and 16.9 million shares of Interstate stock. Continental had acquired Taggart Bakeries, ofIndianapolis, Indiana, in 1925[7], and brought Taggart’s original creations Wonder Bread and Hostess brands – amongst others – to Interstate. Taggart had created Hostess in 1921, which concentrated on cakes like the Twinkies, Ding Dong and Ho Hos which were created during Continental’s ownership.[8]
During this time, the merged company also bought San Francisco French Bread Company, John J. Nissen Baking Company, Drake’s, and My Bread Company.[6]
When extended-shelf-life enzymes were developed for bread, the hope was to convert the system of many small inefficient bakeries into an efficient network of a relatively few giant bakeries like their snack cakes operation. However, the recipe using the new enzymes caused the bread to have a different taste and texture,[9] and other market forces like a resurrection of theAtkins diet and competitor Krispy Kreme doughnuts affected pricing and sales volume.
http://en.wikipedia.org/wiki/Hostess_Brands
Still, PE firms buy companies mostly in leveraged buyouts where the businesses being acquired borrow most of the money to finance their own takeovers. Buyout firms rarely inject their own capital into companies after saddling them with more debt.
In 2009, Ripplewood bought Hostess out of bankruptcy, ending a more than four-year battle over the company’s fate.
While it worked to turn around the company, Ripplewood also charged Hostess a $3 million annual management fee, which it only suspended in September when there were liquidity problems. Hostess also bought dough ingredients from a separate Ripplewood-owned company, Delavau Holdings.
http://www.nypost.com/p/news/business/vulture_culture_clash_qlM6bIAMZncDtjqTy06QpO
Rayburn said 11 executives received pay hikes that were made by the board of directors in a bid to “stabilize” the management team. Three of those executives, including the general counsel and former CEO Brian Driscoll, have since left the company.
“In hindsight, it didn’t stabilize the team because we lost three people,” Rayburn said in an interview with The Associated Press.
…
Rayburn, a restructuring expert named last month to steer Hostess through its bankruptcy process, said it was “the right thing to do considering the challenges we face to restore Hostess Brands.” Rayburn’s firm charges $120,000 a month for his services.
http://www.businessweek.com/ap/2012-04/D9U1NU180.htm
Hostess, which won the right to force the new contract on those 6,000 workers, started imposing 8 percent pay cuts on about one-third of them on Oct. 22.
The strategy seems aimed at keeping bakers at all 36 locations from striking at once.
The bakers union, as part of its last collective bargaining deal, agreed not to strike unless a new labor agreement was forced on them.
http://www.nypost.com/p/news/business/labor_unrest_baking_IM2mdwJx3pjiINT2yrOwxI
The contract called for an 8 percent wage reduction that was imposed in recent weeks. With all concessions and give-backs, the union said the cuts amount to 27 percent to 32 percent overall.
The company also stopped making contributions to a multi-employer pension program in July 2011 and imposed cuts in health benefits.
The latest round of cuts rankled union members still smarting from give-backs when Hostess went into bankruptcy in 2004. In that case, which lasted five years, 21 Hostess plants were shut down, the union said, and thousands of jobs lost.
Hostess has countered that cumbersome work rules and other provisions of its union contracts are partly to blame for its financial woes.