That’s a Big Twinkie

While you’re probably aware by now that Hostess, the makers of Twinkies, Ding Dongs, and Ho Hos is going out of business, what you may not know is that company executives essentially looted the company at the same time it was going through the early motions of filing for bankruptcy (for a second time) earlier this year.

BCTGM members are well aware that as the company was preparing to file for bankruptcy earlier this year, the then CEO of Hostess was awarded a 300 percent raise (from approximately $750,000 to $2,550,000) and at least nine other top executives of the company received massive pay raises. One such executive received a pay increase from $500,000 to $900,000 and another received one taking his salary from $375,000 to $656,256.

The CEO who received a pay raise of 300 percent while in the middle of filing for bankruptcy was eventually ousted by the Teamsters union, but the fact remained the company had to commit to restructuring if it was going to survive, and the Teamsters union agreed to make concessions on wages and healthcare contributions.

While highly critical of management missteps, the Teamsters agreed in September to major concessions, including cuts in wages and company contributions to health care. As part of the deal, the union was to receive a 25 percent share of the company’s stock and a $100 million claim in bankruptcy.

“The objective was to preserve jobs,” said Ken Hall, the Teamsters’ general secretary-treasurer. “When you have a company that’s in the financial situation that Hostess is, it’s just not possible to maintain everything you have.”

But that wasn’t the end of it.

The bakery union refused to agree to another round of concessions because it had already agreed to over $100 million in concessions, and after years of conceding to failed management, union members chose to strike rather than be beaten down any further.

BCTGM International Union President Frank Hurt stated, “The recent claim by Hostess CEO Greg Rayburn that our strike is the reason for the closure of the three bakeries is simply not true. That statement is a continuation of a disturbing pattern by the company of issuing public statements that are erroneous at best and disingenuous at worst. [...]

“Our members are on strike because they have had enough. They are not willing to take draconian wage and benefit cuts on top of the significant concessions they made in 2004 and give up their pension so that the Wall Street vulture capitalists in control of this company can walk away with millions of dollars.”

Over the past eight years since the first Hostess bankruptcy, BCTGM members have watched as money from previous concessions that was supposed to go towards capital investment, product development, plant improvement and new equipment, was squandered in executive bonuses, payouts to Wall Street investors and payments to high-priced attorneys and consultants.

DealBook reports that the private equity backers who lifted to company out of bankruptcy after it’s previous filing loaded the company up with too much debt to invest in the business, thus contributing to labor costs.

More from Reuters

The company filed for its first bankruptcy in 2004, citing declining sales, high food costs, excess capacity and worker benefit expenses. It tackled some issues – closing bakeries and simplifying some union contracts — but it did not deal with its debt. It went into the first bankruptcy with $648.5 million in debt, and came out with more than $800 million, according to court documents.

As a result, the company’s second bankruptcy– after less than three years under the control of private equity firm Ripplewood Holdings — came as no surprise to some workers.

Going on strike as the company was on the precipice of liquidation may not have helped matters, however after years of gross mismanagement, false promises, lavish executive pay, and concessions from the union, employees voted not to commit to another round of cuts to appease investors. Employees had already made repeated concessions over much of the past decade, and the company never turned a corner.

Executives and investors will now ride off into the sunset following the sale of company assets while 18,500 employees will lose their jobs.

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  • agrazingmoose

    Mitt is bummed that Bain passed on that deal.

  • muselet

    We are told that the Free Market—hallowed be its name!—works efficiently. We are told that the Free Market—hallowed be its name!—punishes CEOs who underperform. We are told that the Free Market—hallowed be its name!—only rewards the denizens of corner offices if their companies are profitable. We are told that the Free Market—hallowed be its name!—must be allowed to operate without regulation, lest that efficiency and punishment and rewarding be corrupted by *scary music sting* The Evil Hand Of Government Interference! We are told that the Free Market—hallowed be its name!—must operate free from consideration of mere workers and that labor unions are *scarier music sting* Worse Than Satan!

    Bushwa.

    Hostess suffered through a parade of incompetent CEOs—lustily cheered on by Wall Street—who paid themselves handsomely but did everything but steal the furniture from employee break rooms. Failure was not only an option, it was practically a foregone conclusion.

    Think back to the near-bankruptcy of the US auto industry, and how everyone blamed the auto workers for the problems (as if the guys working on the assembly lines were the ones designing lousy cars and greenlighting ineffective advertising campaigns). Compare to now and the shrieking headlines saying things like, “Labor woes send Hostess into bankruptcy”.

    No one who actually works for a living will benefit from Hostess’s bankruptcy. The ones who actually flew the company into the ground, they’ll get paid their millions and go on to damage or destroy other companies, bigger ones if they’re very lucky.

    Ladies and gentlemen, your Free Market—hallowed be its name!

    Pfui.

    –alopecia

  • Victor_the_Crab

    You bastards do NOT take my Hostess Apple Pies away from me without consequence!

    When the revolution comes, the executives of Hostess will be the first ones to have hot liquid metal forced right down their throats.

    • http://drangedinaz.wordpress.com/ IrishGrrrl

      For me it’s the cherry pies….how can I go on?!?!

  • rob black
  • trgahan

    Great Post! too bad in a few weeks this will be reported as nothing but another example of greedy unions destroying America’s manufacturing sector. Cause CEO get high pay because they clearly are the best of the best or they won’t be CEOs

    • Brutlyhonest

      In a few weeks? As I stated in the previous twinkie thread, that’s exactly how it was reported on two local “news” broadcasts yesterday; it was also inferred by Deuce Williams on nbc nightly last night.