Junk food addicts across America held their breath, because it looks like one of the oldest, time-honored snack foods is about to go bye-bye forever. Four days ago Hostess Brands, 82-year old maker of Twinkies and Ho-Ho's, filed motions to enter bankruptcy, requesting payouts for key managers and closure of most of the bakery's operations. The move comes after a week of labor strikes led by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) whose claims over excessive demands from the company's management prompted workers to strike in 24 production facilities across the country. Under orders from bankruptcy court Judge Robert Drain, executives from Hostess and officials from BCTGM entered into private mediation, but in a last attempt to settle the labor dispute, negotiations have failed and 18,500 jobs hang in the balance. Adding headcount to the unemployment pool is troubling, but how in the world we got here is even more worrisome. Workers strike to keep pay and benefits where they are and the company threatens to cost them all their jobs by filing to liquidate? Are the books at Hostess really that bad, or is this how corporate America plans to act when workers resist cuts for cutting sake?
A Not So Golden Sponge Cake
The battle between Hostess and its unionized work force has centered around the BCTGM's claims that company management planned to cut pay and benefits by 30 percent while key managers received increases of anywhere from 35 to 85 percent. BCTGM reported that during the downsizing that occured in Hostess's first bankruptcy, it made concessions that allowed Hostess to save $110 million, which the company committed to invest in improvements to the business. The agreement between the two parties resulted in workers taking an eight percent reduction in pay, a 17 percent cut in health plan contributions and a freeze on pension contributions until 2015.
Statements from the CEO, Gregory F. Rayburn, confirm the company's position that increased labor costs, along with higher ingredient costs and slowing sales growth, are negatively impacting Hostess's profitability . However Hostess has told this story before. In 2004 the company filed for Chapter 11 bankruptcy citing managerial failures, electronic accounting issues, increased ingredient costs, waning brand presence, and a lack of new products. At the time, Hostess was $1.43 billion in debt and over five years laid off over 10,000 workers, reduced benefit payouts and cut wages to align labor costs with sluggish revenues. Based on its current financial position, many of these concerns went unresolved as the company continued to struggle with marketing and profiting from even its best known brands.
Article comments
1 - Dr Dreadful
Unions don't make the decision to go on strike lightly, especially nowadays when in most states there are laws mandating a vote of members before a strike is declared. For workers, a strike means lost pay and hardship with no guarantee that their wages and working conditions will improve in the long term.
From all that I've read, I can't see that the BCTGM acted unreasonably or rapaciously in this case, whereas there is plenty of evidence to suggest that Hostess's downfall came about through long-term mismanagement.
The bottom line is that it is management that is ultimately responsible for the running of a business. If you agree to a deal with a union knowing that it will be unworkable, that too is mismanagement. You hardly then have the moral grounds to turn round and blame the union when the company fails.
2 - Alexander J Smith III
-Dr Dreadful
Now I agree with you completely here, and I couldn't find any solid evidence to suggest that liquidating the company was the only option Hostess had at the time. IN particular, management's decision seemed strange in the face of the workers only asking to retain their pay and benefit contributions at the levels where they were because the Union wasn't asking for increases. Hostess could have made a deal but chose not to and I think that says a lot about the relationship between labor and management in U.S. firms.
3 - Igor
The executives are doing exactly what their plan calls for: liquidate the company and take the assets as booty.
There's no mystery about this at all. And it's happening all over America in every industry: execs are managing the companies into deep problems and declaring bankruptcy as soon as possible. Then, they claim the liquidated asets as soon as possible to get the highest yield for the least time and effort.
Federal corporate law allows them to cash in pension funds and healthcare funds as they wish, unless controlled by unions (those damn busybodies!)
It's a scam, pure and simple. Trillions of dollars in company assets across America are on the chopping block.
The execs have NO interest in saving the company. For them, personally, their best return is to crash the company. They'll get the assets, both as 'retention' bonuses and as stockholders (by this time they've converted all their common stocks from the ESO to Preferred stocks so they're first in line at the bankruptcy payout window.
It's a scam, plain and simple. A quick killing. And it's spreading across the American business world like a plague of locusts.
There is NO good business reason for this corporation to fail. They make a popular retail product and they OWN the most valuable properties in the grocery business: the quick food shelves in the grocery and convenience stores. Salesmen for competitors would kill for those properties. More valuable per linear inch than mansion lots in the Hamptons! More expensive than ocean front lots in Malibu or Biarritz or the Riviera!
Scam, folks! That's spelled S-C-A-M. SCAM!.
4 - Igor
What the execs at Hostess did to employees is called "betrayal without remedy".