I thought it was interesting that everyone played a roll in Hostess's demise as well as the American public no longer having a taste for their food. QB
Wonder Bread runs deep in my family. I started at Interstate Bakeries in 1999 in Waterloo, Ia after the birth of my first daughter. I asked my father in law who to talk to for an interview. He had spent his entire adult life there, eventually retiring in 2007. His father drew retirement from the very same bakery. My wife and her sisters experienced a truly middle class Midwestern upbringing, complete with a safe home environment, college educations, and health insurance. He went to work everyday knowing he would be able to retire and draw his pension. He was even able to pass the job down to his son in law.I love Wonder Bread. It has supported our family financially and medically for the last 14 years. When my wife wanted to attend graduate school we found a university near a bakery and moved to Lawrence, KS, home of the greatest basketball team in the history of ever. I will miss the overwhelming smell of baking bread and the friendships I built at both bakeries. Including with engineers, truck drivers, supervisors and managers who have also lost their jobs.Many of them likely blame the Bakers Union, me. Most understand that this was inevitable. There has been no confidence in the leadership of this company at any level of any department for years. We have watched 6 CEO's come and go since 2002 and all of them left the company worse than when they took over. All of them got paid, not just the salaries they agreed to, but bonuses and increases all along the way. Including the current joker, who announced he was leaving with less than a year on the job, before he even submitted this last contract offer to us.When I received my first paycheck from then Interstate Bakeries in 1999 it had a memo stapled to it. The memo announced that Wonder had just had the most productive quarter in baking history. It stated that the health of the company and brand had never been better. The break room was buzzing with excitement because our contract was soon to be up for renegotiation and this would surely mean smooth sailing. A few weeks later we got the 'oops' letter. Turns out it was all an 'accounting' error and the company was failing miserably.Conveniently though, CEO Charles Sullivan and the board managed to sell their stock before word got out about the bad news. No jail time of course. In fact, Sullivan was brought back as a consultant after his resignation. Enron happened a few years later and at the bakery we were amazed how much attention they got compared to us.The company of course used it's 'oops' letter to justify asking for concessions from the Union. We gave nothing and gained nothing that year after a 45 minute strike. The status quo continued and I proudly joined the middle class for the first time in my life. I made $14 an hour and had insurance. I even went on vacations for the first time. I had great pride in my job, and the products. We bought a new car for the first and only time in my life. In 2003 I transferred to the Lenexa, KS bakery.In 2005 it was another contract year and this time there was no way out of concessions. The Union negotiated a deal that would save the company $150 million a year in labor. It was a tough internal battle to get people to vote for it. We turned it down twice. Finally the Union told us it was in our best interest and something had to give. So many of us, including myself, changed our votes and took the offer. Remember that next time you see CEO Rayburn on tv stating that we haven't sacrificed for this company. The company then emerged from bankruptcy. In 2005 before concessions I made $48,000, last year I made $34,000. My pay changed dramatically but at least I was still contributing to my self-funded pension.In July of 2011 we received a letter from the company. It said that the $3+ per hour that we as a Union contribute to the pension was going to be 'borrowed' by the company until they could be profitable again. Then they would pay it all back. The Union was notified of this the same time and method as the individual members. No contact from the company to the Union on a national level.This money will never be paid back. The company filed for bankruptcy and the judge ruled that the $3+ per hour was a debt the company couldn't repay. The Union continued to work despite this theft of our self-funded pension contributions for over a year. I consider this money stolen. No other word in the English language describes what they have done to this money.After securing our hourly cash from the bankruptcy judge they set out on getting approval to force a new contract on us. They had already refused to negotiate outside of court. They received approval from the judge to impose the contract then turned it over to the Union for a vote. You read that right, they got it approved by the judge before ever showing to the Union.What was this last/best/final offer? You'd never know by watching the main stream media tell the story. So here you go...
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.
It will be hard to replace the job I had, but it will be easy to replace the job they were trying to give me.
That $3+ per hour they steal totaled $50 million last year that they never paid us. They sold $2.5 BILLION in product last year. If they can't make this profitable without stealing my money then good riddance.I keep hearing how this strike forced them to liquidate. How we should just take it and be glad to have a job. What an unpatriotic view point. The reason these jobs provided me with a middle class opportunity is because people like my father in law and his father fought for my Union rights. I received that pay and those benefits because previous Union members fought for them. I won't sell them, or my coworkers, out.We may have forced the companies hand but they were going to smack us with it anyway.
Who's to Blame for the Hostess Bankruptcy: Wall Street, Unions, or Carbs?
Hostess Brands, the maker of Twinkie and Wonder Bread, is getting ready to bake its last corn-syrupy snack cake. After failing to win major contract concessions from one of its key labor unions, the beleaguered 82-year-old company has asked a federal bankruptcy court for permission to start liquidating its assets -- or, in real person speak, begin the process of selling off pieces of the company to the highest bidder while laying off most of its 18,500 workers. There are two important things to realize about this rather sad situation. First: Twinkie, Wonder, and all the other high-calorie marvels of culinary science Hostess sells aren't going to disappear from shelves for good. One of its competitors will likely swoop in, buy them up, and restart production. So you can stop bidding on $100 boxes of Sno Balls on eBay.
Second: This is not a simple story that anybody should try to slot neatly into their political talking points. It's not just about Wall Street preying on Main Street, or big bad labor unions sucking a wholesome American company dry. It's about an entire galaxy of bad decisions that will cost many people their jobs and money.
As David Kaplan chronicled at length for Fortune earlier this year, the roots of this debacle go back to when Hostess entered its first bankruptcy in 2004. Not unlike the situation automakers would find themselves in a few years later, the company was collapsing under the weight of flagging sales, overly generous union contracts replete with ridiculous work rules, and gobs of debt. But unlike the automakers, the five years Hostess spent trying to fix itself in Chapter 11 didn't fix its fundamental problems.
Instead, they set the stage for its eventual demise. A private equity company, Ripplewood Holdings, paid about $130 million dollars to take Hostess private, and the company's two major unions, the Teamsters and the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union, sacrificed about $110 million in annual wages and benefits. But its labor contracts were still deeply flawed. Worse yet, the company left bankruptcy saddled with more debt than it went in with -- "an unusual circumstance that the company justified on expectations of 'growing' into its capital structure," as Kaplan put it.
Suffice to say, Hostess didn't do much growing. It continued to lose hundreds of millions of dollars making and selling starchy snacks that much of the public had lost its taste for, while failing to launch any great new products. The interest on its loans swelled the company's debt. By January 2012, it was back in Chapter 11, trying to wrestle a new contract with more concessions from its unions.
Hostess insisted that unless workers accepted further cuts, the company would have to shut its doors for good. That's the sort of threat that distressed companies often make in labor negotiations, and unions are inclined to consider it a bluff. But after getting a look inside Hostess' books, the Teamsters concluded that the threat was serious. Its members narrowly approved the contract in September. The bakers' union, which represents about a third of the Hostess' workforce, did not. Instead they launched a strike last week that Hostess CEO Greg Rayburn says forced the company to take the final, dramatic step of liquidating everything and firing workers. Per the AP:
Although many workers decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels; three plants were closed earlier this week. Rayburn said Hostess was already operating on thin margins and that the strike was a final blow.It's not clear what, other than perhaps a misplaced faith that belief that they really did have the upper hand, might have convinced the bakers to strike. Certainly, the Teamsters all but beggedthem to accept the new contract. Some, interviewed by CNNMoney, said that their jobs simply weren't worth saving at the pay levels Hostess was offering. If that was really the prevailing opinion, it's a pity, because a lot of people at that company did seem to believe their jobs were valuable enough to hold onto, even if at a lesser pay grade.
"The strike impacted us in terms of cash flow. The plants were operating well below 50 percent capacity and customers were not getting products," Rayburn said.
Already, a few parties have tried to politicize this affair. The AFL-CIO today called it "a microcosm of what's wrong with America, as Bain-style Wall Street vultures make themselves rich by making Americans poor." GOProud sent a winking blast email headlined "Unions Kill Twinkies" (literally, they wrote in a wink).
Both takes are exceptionally reductive. Let's look at Wall street first. The private equity guys will likely lose most of their investment, since their stake in the company will be worthless. It's also not clear that the hedge funds and other lenders that supplied Hostess with its mountain of loans will fare much better. When it entered Chapter 11 this year, the company owed around $935 million, if you include the additional loan it took out to keep the lights on and creme flowing. Meanwhile, Reuters reports that the company listed $981.6 million worth of assets in its bankruptcy filing. There's virtually no chance they'll sell for that much in a liquidation. One of the failed bids to buy the whole company out of its last bankruptcy valued it at just $580 million. And that was when it was a going operation. If you factor in the interest payments Hostess has been making on its loans, some of the creditors might end up making out ok. But it doesn't seem likely anybody will make a killing.
In short: the smart money guys larded Hostess with too much debt and never figured out a real plan for fixing its business. They're coming out with a loss as a result.
As far as the unions go: You can blame them for not making enough concessions. You can blame the bakers for administering the final death blow. But you can't blame them for management's strategic incompetence, or the decision to try to run a flailing company on debt, hope, and empty calories. There's more than enough blame in this story for everyone involved to have a taste.
What killed Hostess?
Written by Jon Talton of The Seattle TimesIt makes a convenient fairy tale, especially in the "conservative" blogosphere, to claim that unions were behind the demise of Hostess Brands, which has announced it will wind down its operations, closing 33 bakeries and 565 distribution centers, laying off almost all of its 18,500 workers. Among the closures is the streamlined moderne building in South Lake Union familiar to generations of Seattleites.The Washington Post's reliable right-wing propagandist Jennifer Rubin put it this way:
Is there any wonder (pardon the pun) that Big Labor is at a low point in membership and public support? The notion that it's better to send 18,500 people to the unemployment lines and dissolve -- not merely sell, but break up and eviscerate -- a venerated company is the sort of zero-sum mentality that should send American workers fleeing from organized labor.The reality, naturally, is far more complicated. It is true that the company has faced a strike by theBakery, Confectionery, Tobacco Workers and Grain Millers Union, which affected nearly two-thirds of Hostess's factories across the country. Workers rejected the company's offer by voice vote. The Teamsters, by contrast, voted by secret ballot with members approving the deal. Teamster drivers did honor the picket line while quietly prodding the other union to reconsider.
But years of management missteps go along with those of the unions. Hostess has been in two Chapter 11 bankruptcy reorganization filings in recent years. The company founded as Interstate Bakeries in Kansas City, Mo., in 1930, went through a series of mergers and name changes after 1975, when it was acquired by a computer-leasing company. Management took it private, then public, then private again. "Rip, strip and flip" deals went bad. There was the obligatory move of the headquarters to an office "park" in Irving, Texas. A botched 1995 acquisition of Continental Bakingcaused a ruinous culture clash.When Hostess emerged from its first Chapter 11 in 2009, unions made huge concessions and the company was controlled by private-equity outfit Ripplewood Holdings and other investors, including two hedge funds specializing in distressed companies. To further complicate a comic-strip narrative, Ripplewood is run by Tim Collins, a Democrat who wanted to explore deals with union-represented companies.In the latest Chapter 11, the company was saddled with nearly $1 billion in debt. In addition, it was reported that while operating under Chapter 11, top executives gave themselves 80-percent raises in 2011. To be fair, a new chief executive came in last spring and cut the salaries of the four top execs to $1 (to be restored in January). Symbolism is better than nothing. A big complaint is "legacy" pensions, some $2 billion worth. The unanswered question is why were these unfunded during the good years? Executive compensation is never unfunded. When chief executives fail, their lavish golden parachutes are never unfunded.Meanwhile, America changed. The appetite for Twinkies, Ding-Dongs, Cup Cakes, Suzy Qs and those mysterious but tasty fruit pies waned as healthier eating became popular. The Great Recession added its damage. With the workers on the street, investors will gain something back by selling off some of those trademark products, and, as the Puget Sound Business Journal reported, such coveted real estate as the South Lake Union bakery.The best summation of the Hostess tragedy was written before the final act, last summer in Fortune. "In truth there are no black hats or white knights in this tale. It's about shades of gray, where obstinacy, miscalculation, and lousy luck connived to create corporate catastrophe."
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