Archive for Saturday, November 17, 2012

Twinkies no more? Hostess demise fuels fears

November 17, 2012


Israel and Hamas were exchanging artillery fire over the Gaza Strip, the Jayhawks had pulled out a squeaker the night before over Chattanooga, and Free State was battling for the state football championship. But the big item of conversation in Lawrence on Friday, as it was around the country: the possible demise of Twinkies.

The iconic cream-filled golden yellow snack cakes were endangered by the sudden closing of its hedge fund-owned corporate parent, Hostess Brands, following a labor dispute with its biggest union, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. The company said it would liquidate, immediately lay off its 18,500 workers and close its 33 plants and 565 distribution centers, including facilities in Lenexa (200 workers) and Emporia (500 workers).

The reaction to this news was near-panic among Twinkie lovers. Junk food junkies rushed to clean out store inventories of their beloved golden cakes. The Massachusetts Street Dillons, for instance, only had the inferior chocolate version of Twinkies left at noontime.

Also threatened: related brands such as Hostess Cup Cakes, Ding Dongs, Ho Hos and another famous American bakery brand name, Wonder Bread.

Truth be told, this probably isn’t really the end of Twinkies and its snack food siblings. Odds are that the brands and their recipes will be purchased in bankruptcy court and quickly revived by another manufacturer. But that didn’t stop the chatter about the death of Twinkies, and the Journal-World went out on the streets in Lawrence to listen to what people were saying.


Jean Robart 5 years, 5 months ago

Gee, what a shame. Maybe folks will be able to find a less fat snack. I liked an occasional Twinkie, but to have the company closing affect people like it is, is just plain silly.

Terry Sexton 5 years, 5 months ago

if you need your twinks that badly, you can make your own

scroll down to see Buffalo Bob make 'em for everyone in Doodyville

beatrice 5 years, 5 months ago

Unions are at an historic low, and have you noticed the rise in poverty and people in need of assistance? It is amazing that the Hostess execs took large pay increases early in the year even though they were in bankruptcy. Yes, greed is bad.

chootspa 5 years, 5 months ago

How dare those union workers get upset that they were asked to have a 30% pay cut and no pensions! Clearly this was the fault of the workers and not the hedge fund owners that had siphoned off the corporate assets to make themselves rich.

dipweed 5 years, 5 months ago

Twinkies and cockroaches....the only two things that would survive a nuclear holocaust....

Clara Westphal 5 years, 5 months ago

I didn't care for the Twinkies but my two sons loved them.

The early banana variety was gross but the vanilla ones were ok.

Phil Minkin 5 years, 5 months ago

It's a cruel irony that just after 2 states approved recreational marijuana use, Twinkies, Ho-Ho's and Ding Dongs are no longer available.

Jean Robart 5 years, 5 months ago

Ah, but goldfish and cheetos are still available!

kawrivercrow 5 years, 5 months ago

"After seeing some backlash, Hostess Brands said it will chop the salaries of its four highest-paid managers to $1 until Dec. 31 or it emerges from Chapter 11 bankruptcy protection, The New York Post said. The company, which boosted salaries last summer as a retention strategy while it restructured, also plans to return junior executive salaries to lower levels."

Katara 5 years, 5 months ago

They always claim it is for retention but if the company is doing poorly why on earth would you want to retain the executives that made the decisions that caused the company to do poorly?

kawrivercrow 5 years, 5 months ago

I've read a fair amount about this in other articles in the Wall Street Journal, etc. The following is an excerpt of a posting I originally put up elsewhere.

The CEO got a $1.8 M raise and 9 others got a couple of hundred $K each (let's generously average them out to $400K) That's $5.4 M, which is just a little over 1% the $448 M deficit. In keeping a sense of scale, that $5.4 M pays for the strategic management of 18,000 employees and $2.4 Billion in annual receipts. That is about $300 per employee per year and 0.2% of total receipts spent on upper management.

Meanwhile, the 6,000 members of the Bakery, Confectionery, Tobacco Workers and Grain Millers' International Union (BCTGM) were each making 30% more than the industry average (per WSJ reports). This is about $60 million EXTRA in annual payroll expenses for that union alone that Hostess' competitors did not have to pay. Meanwhile, ff the top ten executives worked entirely for free, it wouldn't have changed the red ink by more than a single percent point or so.

If upper management failed, it was a failure to block exorbitant and unaffordable entitlements and salaries that the unions, most specifically the BCTGM , indulged in.

beatrice 5 years, 5 months ago

Are you suggesting that taking extras from the upper managment at a time when the company's finances were failing isn't a form of greed? Whatever you think of the unions, is this proper managment for a failing company?

just_another_bozo_on_this_bus 5 years, 5 months ago

Greed is good as long as it's upper management. But if you're just trying to keep your family above water and you belong to a union, well, that's just pure evil.

kawrivercrow 5 years, 5 months ago

RE: 'keeping above water'.

BCTGM members were getting paid 30% above industry standards (avg $22/hr), thus costing an extra $60 million a year. They were asked to take an 8% cut.
How many HS-educated Americans would love to make $20/hr w/ benefits for hitting the ON/OFF button on an assembly line dough-mixing unit?

Katara 5 years, 5 months ago

Hostess also stopped funded those workers' pensions.

Additionally Hostess had already once been through bankruptcy in 2004.

There is a lot more involved in the work than pushing a button. Someone has to maintain the machines, for example.

It is amusing that folks assume that factory work is so easy.

just_another_bozo_on_this_bus 5 years, 5 months ago

"How many HS-educated Americans would love to make $20/hr w/ benefits for hitting the ON/OFF button on an assembly line dough-mixing unit?"

I'm sure most of them would much rather make $200 an hour for sitting on their crackberry and sipping lattes while running the company into the ground.

chootspa 5 years, 5 months ago

See my post below. Per a Lenexa employee, the top pay was $16.25 an hour, and the self-funded pension was already gone. The 8% cut was for the first year and would be followed by cuts for the next five years, until in some cases they'd be out 32%. Their insurance costs also doubled, and the pension would be totally eliminated.

I'm not sure where you get your averages, because you still haven't cited any sources, but it appears to be misleadingly sourced. I'm wondering if you're taking average wages including management, using 2005 figures, or getting them from only the most expensive factory wages, because if the top pay for a bakery worker in Lenexa is $16.25, the average pay would have to be much lower.

msezdsit 5 years, 5 months ago

Your wrong about the average pay it is closer to $15 pr hr and the benefits are gone. But hey, just pretending along with your numbers, the 60 million is chicken feed when it comes to the pay scale of the failed management that hedged this company into failure.

Tomato 5 years, 5 months ago

The CEO didn't get a raise. The current CEO was brought in after Hostess went into Chapter 11 bankruptcy because he specializes in restructuring companies in distress. They agreed to pay him 100k a month.

Back in April, however, the current CEO decided to cut all executive pay to $1 until the end of the year (including his own).

That said, 100k a month doesn't seem that extreme, considering how hard it is to get talented managers to even look at a company in distress.

But the BCTGM leadership convinced its membership to strike based on the falsehood that upper management was being paid huge salaries and that there was a secret buyer waiting in the wings to rescue the company. I feel sorry for the employees of Hostess, because they were so badly misled by their union.

just_another_bozo_on_this_bus 5 years, 5 months ago

While you've demonstrated a very poor understanding of what actually happened, you've demonstrated very good skills in retyping management's press releases.

Katara 5 years, 5 months ago

Gosh, that CEO certainly didn't do a very good job for someone who specializes in restructuring companies in distress. Hostess filed for bankruptcy in 2004 and just emerged from it in 2009. It is now 2012 and Hostess is filing again.

tomatogrower 5 years, 5 months ago

And he just kept on producing the same products that no one wanted anymore. Real smart.

chootspa 5 years, 5 months ago

Please link to these WSJ reports, because the ones I've read have not listed this 30% higher than industry average pay and claims unions had already granted quite a few concessions. But I guess factory workers all deserve low wages and no pensions, as long as the hedge funds get paid to drain all the assets without concern for the little people and their ruined lives.

Katara 5 years, 5 months ago

Well, gosh, chootspa. The work is just so darn easy. All you have to do is push a button. The factory practically runs itself!

chootspa 5 years, 5 months ago

Well, it is true that CEOs who specialize in piecing out failing companies, shutting down factories, and selling all the assets for so many used parts without regard to the lives they may ruin are far more virtuous than some 40 year old physical laborer who planned his future around the pension his employer promised. People who work very hard but didn't go to college totally deserve to be dumped on by people who don't actually need to work in order to live comfortably for the rest of their lives, and leveraged hedge funds totally make sense as a business model.

You know we've reached bizarro world when the statement I wrote sarcastically is, in fact, a deeply held belief by many posters on this board who are themselves one layoff from destitution.

tomatogrower 5 years, 5 months ago

kawrivercrow, The management is also in charge of making decisions about products. The management for years must have thought the health craze was only temporary. They should have upgraded their product, started making other things, adapted with the changing times. They didn't, they failed. This is the real problem. A failure of innovative leadership. Leadership who probably only took business classes, because they didn't want any of that namby pamby Liberal Arts. Their education was incomplete. They didn't learn to think creatively and flexibly. End the stupid MBA programs and make sure people are getting a broad education.

kawrivercrow 5 years, 5 months ago

I'll tell you something funny, and by that I mean funny as in 'queer' and not funny as in 'HA HA', is that people who dogmatically defend unions are often the same ones who dogmatically defend the use of illegal aliens as uber-cheap labor

beatrice 5 years, 5 months ago

While those who dogmatically attack union workers are the same ones who dogmatically defend vulture capitalists, and even vote for them for president.

kawrivercrow 5 years, 5 months ago

Well, I'm not attacking all union workers in this case, just BCTGM. So are the Teamsters*. There were about 11 unions with a dog in this fight. The 10 others did not agree with the bakers' union. I have to believe that the bakers' are the bad guys in this one, in great part by doing my own research and arithmetic. Still, all too often, I see this as the natural outcome of unions; giving themselves enough bargaining power to price themselves right out of a job...often at the expense of others. See UAW as another example.

chootspa 5 years, 5 months ago

The company's burdensome debt traces back to Hostess's first trip through bankruptcy in 2004. Missteps by a private-equity firm, hedge funds and managers since burdened the company, despite its more than $2 billion in annual sales. <---- WSJ

Clearly, that was the fault of the baker's union.

kawrivercrow 5 years, 5 months ago

'2 billion in sales' doesn't clarify the profit margin.

However, the bakers' union bloated wages was costing them $60M EXTRA a year. 8 years of $60M/yr comes out to $480M. Ironically, that is the amount of outstanding debt they have now.

I do not know how much the other ten unions' wages were in excess of industry averages (if at all), but at least when the chips were down, they were willing to compromise for the greater good.

chootspa 5 years, 5 months ago

The workers took pay cuts already. If they were "overpaid," that should have been resolved the first time around when they first agreed to pay cuts. And all that debt? Was unironically the fault of the private equity firms that took control of the company. But I guess "Those darn unions" is a lot easier to say than, "We're just lousy managers" or "We had no intention of rehabilitating this company because leveraged buyouts are designed around making a quick buck by saddling the company with the debt we incurred buying them in the first place and not around actually making long term investments."

Your desire to exonerate bad management is so very strange.

Katara 5 years, 5 months ago

Not only did workers agree to pay cuts before to help the company out after the first bankruptcy, the company then turned around & stopped funding their pensions. Currently, Hostess has $2 billion in unfunded pension liabilities. The workers will never see that money. The future they planned on in exchange for their work for Hostess is in jeopardy. But not the executives. Driscoll got a $1.95 severance pay package as long as he honored the non-compete clause. The new CEO gets a base pay of $125,00/yr and the only executives taking the $1/yr salary are the top 4 executives and then they go back to the same salaries they had before on Jan.1st.

Thousands of workers already lost their jobs due to union concessions before. The savings in labor costs was $110 million. Hostess workers already sacrificed quite a bit and what happens? Upper management gives themselves pay raises and pad their golden parachutes.

tomatogrower 5 years, 5 months ago

Yet they never tried to change their marketing or their product. Why? The workers don't make those decisions.

bearded_gnome 5 years, 5 months ago

bet the shadow bosses in charge of the bakers union make more than the heads of hostess. that is once you add in all forms of remuneration.

just looking at total sales talls you absolutely nothing about profit and loss, nothing at all.

gbulldog 5 years, 5 months ago

Everyone is crying about the loss of jobs due to the closing of Hostess. How many of you have pension plans invested in Hostess.

tomatogrower 5 years, 5 months ago

I should hope pension plan managers would have bailed out of Hostess when they first filed bankruptcy. If not, you better put your plan somewhere else.

chootspa 5 years, 5 months ago

From someone at the Lenexa plant. He explains that the company gave him a significant pay cut in 2005, which they accepted (at union leadership request) because at least they still had their pensions, and then the company took their $3 an hour pension contribution in 2011 and "borrowed" it without asking, later to claim that they couldn't repay it - ever. This was the best offer:

"1) 8% hourly pay cut in year 1 with additional cuts totaling 27% over 5 years. Currently, I make $16.12 an hour at TOP rate of pay in the bakery. I would drop to $11.26 in 5 years.

2) They get to keep our $3+ an hour forever.

3) Doubling of weekly insurance premium.

4) Lowering of overall quality of insurance plan.

5) TOTAL withdrawal from ALL pensions. If you don't have it now then you never will.

Remember how I said I made $48,000 in 2005 and $34,000 last year? I would make $25,000 in 5 years if I took their offer."

So, yeah. Obviously the unions were just totally greedy, right?

jafs 5 years, 5 months ago

Thanks - that's enlightening but depressing.

I wonder what justifies management pay, if the only ideas they have are to cut wages and benefits like that?

Doesn't seem that's worth much to me - it's an obvious idea that anybody could come up with.

Also, taking the pension contribution and not funding the pension plan with it might be a crime - I wonder if they can sue them for that?

chootspa 5 years, 5 months ago

They got the courts to agree to dismissing the pension debt, so my guess is that they get away with robbing those workers.

Cait McKnelly 5 years, 5 months ago

I have to tell ya, Little Debbie has to just be weeing all over themselves.

Centerville 5 years, 5 months ago

Guess who was the venture capitalist who brought Hostess out of its last bankruptcy, but made no change in the cause of its final demise? Hint: it wasn't a Republican.

chootspa 5 years, 5 months ago

Guess who made a lousy investment? Hint: that guy.

While Ripplewood retains some debt, its equity is so far under water that it might as well be gone. It doesn't attend negotiating sessions with the Teamsters -- such is the view from the bottom of the sea. Hostess is at the table but has resigned itself to being a mediator of sorts, with its interests subordinated to the hedge funds, which hold the senior secured debt.

JackMcKee 5 years, 5 months ago

The stupidity of most people is astonishing. A mad rush to get the last twinkies? Are you kidding me? Do these people just not understand the basics of how corporate America and businesses operate? Within weeks the Hostess product catalog will be purchased and your ho-hos and twinkies will still be on your grocery store shelves.

msezdsit 5 years, 5 months ago

And they will taste exactly the same. Hardly a bump in the road. Twinkies for twinkies.

chootspa 5 years, 5 months ago

See the quote above - from the very same article, I believe. The hedge funds are the effective owners at this point.

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