Hostess Brands Inc., makers of the ubiquitous Twinkies, Ding Dongs and Wonder Bread, is going out of business. The management claims it is because the associated workers’ unions would not accept a pay cut, and not enough scabs crossed the picket lines to keep production going:
Hostess Brands Inc. had earlier warned employees that it would file to unwind its business and sell off assets if plant operations didn’t return to normal levels by 5 p.m. Thursday. In announcing its decision, Hostess said its wind down would mean the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores in the United States.
The Irving, Texas-based company had already reached a contract agreement with its largest union, the International Brotherhood of Teamsters. But thousands of members in its second-biggest union went on strike late last week after rejecting in September a contract offer that cut wages and benefits. Officials for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union say the company stopped contributing to workers’ pensions last year.
He denied that the decision to shut down could be a last ditch negotiation tactic to get the union back to the table.
[CEO Greg] Rayburn, who first joined Hostess earlier this year as a restructuring expert, had earlier said that many workers crossed picket lines this week to go back to work despite warnings by union leadership that they’d be fined.
“The problem is we don’t have enough crossing those lines to maintain normal production,” Rayburn told Fox Business.
And that last paragraph is the tell.
What’s interesting in the article is that it barely mentions any other factors that might be involved, like price increases of ingredients or that the demand for these “treats” has dropped in what is a highly competitive market segment.
Which is cold comfort to all those people who are losing their jobs. We are sure Rayburn will be feted as a principled Job Creator and move onto another gig.
Update 1: Gawker notes that: Out of 18,500 individuals employed by Hostess, only 5,000 belong to the bakers’ union. The strikes began on Nov. 9, when the company imposed a contract that would cut workers’ wages by 8 percent. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) said the contract would also cut benefits by 27 to 32 percent.
Update 2: Fortune has an article from August that is interesting; essentially Hostess got “Bained”:
“… Within a month of taking over, Rayburn had to preside over a public-relations fiasco. Some unsecured creditors had informed the court that last summer — as the company was crumbling — four top Hostess executives received raises of up to 80%. (Driscoll had also received a pay raise back then.) The Teamsters saw this as more management shenanigans. “Looting” is how Hall described it in TV interviews.
Rayburn announced that the pay of the four top executives would go down to $1 for the year, but that their full salaries would be reinstated no later than Jan. 1 (2012). Hostess pays Rayburn $125,000 a month, according to court filings. At the same time Rayburn became CEO, Gephardt’s son Matthew, 41, the COO of the Gephardt Group, was put on the Hostess board as a $100,000-a-year independent director.
What the hedge funds want is some degree of capitulation from a union whose members will otherwise lose thousands of jobs in liquidation. If the hedge funds don’t get it, they’ve concluded, the company isn’t worth saving.”