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The Free Market Killed Hostess, And That’s A Good Thing

 

This morning’s news that Hostess Brands, Inc. was shutting its doors after 82 years of operation (originally under the name International Bakeries Corporation) has elicited a lot of commentary from various sources. Culturally, I’m seeing a lot of people lament the fact that some of their favorite brands of snack food or bread — from Twinkies to Ho-Hos to Wonder Bread to Beefsteak Rye Bread — will no longer be available. Politically, there’s been a definite theme on the right blaming the Baker’s Union for the company’s collapse since they would not agree to a modification of their contract notwithstanding the fact that they had been warned that this would happen, and that even the Teamsters Union warned them that they were risking the fate of the company and everyone’s jobs by being so stubborn.  Both of these reactions strike me as being wildly over blown, based largely on common misunderstandings of what actually happens in Bankruptcy Court and the business world, and both miss the point that the death of Hostess Brands is a fairly good example of the free market in action.

Starting off with what happens to everyone’s favorite brands, the idea that they are simply going to disappear is absurd. Outside of the companies physical assets — the remaining bakeries, its distribution network, and the network of retail outlets that it operates — these brands are among the companies most valuable assets. Already there has been speculation among business writers about who might be interested in buying up at least some of these brands and their related assets, and one writer at Forbes notes the existence of a Mexican bakery conglomerate called Groupo Bimbo that tried to buy Hostess the first time it was in Chapter 11 and might be interested in doing so again. Obviously, the more popular a particular Hostess brand is, the more likely it is that it will survive, but the idea the entire company is simply going to disappear betrays a fundamental misunderstanding of what Chapter 11 liquidation is all about.

The purpose of liquidation is to sell the companies assets, either all at once or in pieces, for the highest possible value in order to pay the company’s debts and satisfy its obligations as much as possible. Every sale of assets that occurs has to be approved by a Bankruptcy Court Judge after proper notice of the same has been given to all interested parties. Hostess was a company in serious financial trouble, but it still possessed considerable assets, most notably in its brands, and it’s inconceivable that a Court is going to let those assets simply go away for pennies on the dollar. Now, of course, it may well turn out that few companies will be interested in all of Hostess’s brands and intellectual property, but at least the most popular ones are likely to survive. So, no, it’s probably not the case that your Twinkies are gone forever.

The political side of the Hostess story is about what you’d expect. Many on the right are pointing to today’s events and saying that this is a clear example of how a union, in this case the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union that covered the 5,000 or so bakery employees that worked for Hostess around the country, effectively killed the company by failing to agree to contract concessions that the company, and even some of the other unions representing Hostess employees, said were necessary in order to save the business as a whole. Now obviously, the failure of the union to agree to these concessions was the event that led to today’s announcement. So, in that respect, one can say that they were the proximate cause of today’s decision. However, there’s every reason to believe that their intransigence only resulted in something that was likely to happen anyway.

Consider these facts.

This is the second time that Hostess has been in Chapter 11 in less than ten years. The first time lasted for five years, a somewhat unusually long period of time, from 2004 to 2009.  As any bankruptcy attorney will tell you, most company’s that file for Chapter 11 protection do not make it out successfully. Typically, that’s because of the simple fact that a financially struggling company quite often waits until the last possible minute to file for Chapter 11 protection. By that time, the odds of survival were fairly low to begin with and the time that bankruptcy protection dies usually just serves to delay the inevitable. The companies that do survive usually fall into one of two categories; either their Chapter 11 filing was prompted by a unique “Black Swan” event that can be far more easily dealt with under the protection of the court, or they are so big and valuable that they’re able to find new investors to come in and try to save the concern. Neither of those conditions seem to apply to Hostess’s first bankruptcy, so they were probably lucky to get out of Chapter 11 the first time. without either being forced to liquidate or being sold to another company.

Unfortunately for Hostess, their emergence from bankruptcy protection occurred at what may have been the worst possible time. Hostess Brands, Inc., the company that emerged from the International Bakeries Corporation Chapter 11, emerged from bankruptcy protection in November 2009. While this was well after the worst of the economic crisis that had recently gripped the nation, it was still at a time when the economy was relatively weak and unemployment had hit 10.2%, the highest level it had been at in 26 years. While I don’t have access to any sales numbers, one can assume that these type of economic conditions are not exactly the best for a company that sells snack foods, which aren’t a necessity. In any case, barely two years after it had emerged from Chapter 11, Hostess was falling behind again. It wasn’t making a profit, and by December 2011 it had defaulted on a $700 million loan and been unable to make required contributions to employee pension funds. The present Chapter 11 case was filed in January 2012, and at that point it seems clear that the writing was on the wall.

There’s no doubt that labor costs were a huge problem for the company, but it’s also clear that there were a number of other factors that appear to have contributed to their troubles. Among these are what seems to be a rather antiquated distribution system and the fact that consumer tastes have changed significantly over the years. Most importantly, these aren’t the 1970s when Hostess snacks were a ubiquitous part every kids lunch box, at least in my neck of the woods. (I was a fan of the fruit pies personally)  The bread side of the business was likely suffering from the fact that that particular market is saturated right now and that a lot of grocery store consumers are preferring to purchase breads made fresh on-site rather than branded products. So, yes, the Union was the proximate cause of today’s decision to shut down the business but my feeling is that it would’ve happened anyway.

It’s unfortunate to see this company go away, of course. Not just for the history, but for the tens of thousands of people who are now unemployed. A good many of them are likely to find gainful employment elsewhere, especially groups like the Teamsters who were responsible for the company’s distribution network, but many of them won’t and the communities that they live in are going to be impacted by that, as will their families. At the same time, though, a company that can’t survive financially was never going to be a stable source of employment anyway so I’m not sure whether it would have been better to delay the inevitable by a year or more, or just pull the band-aid off and take the pain now. If the result is going to be the same in the end, it really doesn’t matter when it happens, does it?

Despite these costs, though, the fact remains that what happened to Hostess, like what happens to any other company that fails to survive, is an essential part of the free market system:

Herein lies the paradox of progress. A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. At the same time, attempts to soften the harsher aspects of creative destruction by trying to preserve jobs or protect industries will lead to stagnation and decline, short-circuiting the march of progress. Schumpeter’s enduring term reminds us that capitalism’s pain and gain are inextricably linked. The process of creating new industries does not go forward without sweeping away the preexisting order.

(…)

Over the past two centuries, the Western nations that embraced capitalism have achieved tremendous economic progress as new industries supplanted old ones. Even with the higher living standards, however, the constant flux of free enterprise is not always welcome. The disruption of lost jobs and shuttered businesses is immediate, while the payoff from creative destruction comes mainly in the long term. As a result, societies will always be tempted to block the process of creative destruction, implementing policies to resist economic change.

Attempts to save jobs almost always backfire. Instead of going out of business, inefficient producers hang on, at a high cost to consumers or taxpayers. The tinkering short circuits market signals that shift resources to emerging industries. It saps the incentives to introduce new products and production methods, leading to stagnation, layoffs, and bankruptcies. The ironic point of Schumpeter’s iconic phrase is this: societies that try to reap the gain of creative destruction without the pain find themselves enduring the pain but not the gain.

In the end, trying to preserve Hostess would have been worse than what is likely to happen in the wake of its demise. Perhaps its employees will be lucky and Groupo Bimbo or some other company will step in and essentially take the entire operation over lock, stock, and barrel (although they won’t be tied down by any of the labor contracts). More likely, only the most popular and recognizable brands will survive. Whatever happens, though, it’s a testament to the fact that no company, no business, is guaranteed to survive forever, and that we really ought to let the market take its course rather than intervening in a process that we really don’t quite understand.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. J-Dub says:

    Somehow Mitt Romney is going to profit from this.

    Hot debate. What do you think? Thumb up 21 Thumb down 16

  2. nitpicker says:

    Bimbo’s chocolate, cream-filled cupcake? Exactly as horribly delicious as Hostess. It’s all good.

    Like or Dislike: Thumb up 6 Thumb down 2

  3. Rafer Janders says:

    Look, if you can’t make money peddling deadly, disgusting, fat-filled cholesterol bombs made up of god knows what hideous chemicals to Americans of all people, well, it’s almost like you’re trying to fail…..

    Highly-rated. Helpful or Unhelpful: Thumb up 28 Thumb down 3

  4. Geek, Esq. says:

    Let Hostess Go Bankrupt, by Mitt Romney.

    (Later revised to: Of course I wanted the government to save Hostess, by Mitt Romney).

    Hot debate. What do you think? Thumb up 22 Thumb down 17

  5. Rafer Janders says:

    Whatever happens, though, it’s a testament to the fact that no company, no business, is guaranteed to survive forever, and that we really ought to let the market take its course rather than intervening in a process that we really don’t quite understand.

    Wait, that makes no sense. Whatever the particular merits of Hostess aside, why does the fact that it failed stand as a testament to the fact that we should let it fail? That’s a tautology.

    Like or Dislike: Thumb up 7 Thumb down 4

  6. Geek, Esq. says:

    @Rafer Janders:

    That’s not why they went out of business. They went out of business because their competitors gave away free stuff like nutrition and natural ingredients.

    Highly-rated. Helpful or Unhelpful: Thumb up 21 Thumb down 6

  7. Jenos Idanian #13 says:

    Apparently a prominent Democrat named Tom Collins — a buddy of Dick Gephardt’s — was a big player in this move, too. So that could make blaming Republicans a hard sell.

    Oh, who am I kidding? The top priority of most of the readers here will be to find a Republican to blame somewhere. And if they can somehow tie it in to Bain…

    Hot debate. What do you think? Thumb up 19 Thumb down 28

  8. Jeremy says:

    Well said, Doug.

    But…damn. The fruit pies will probably be gone. They were my favorite.

    Like or Dislike: Thumb up 1 Thumb down 1

  9. Tsar Nicholas says:

    As any bankruptcy attorney will tell you, most company’s that file for Chapter 11 protection do not make it out successfully.

    Are you joking? Most Ch. 11 companies not only make it out successfully they thrive after reorganization. Hell, companies actually line up for a chance at doing business with other companies while the latter are in the midst of Ch. 11 proceedings. For the very reason that when they emerge from BK court they’ve streamlined themselves into leaner, more efficient and more profitable businesses. Either you’re conflating Ch. 7 with Ch. 11, or the bankruptcy attorneys with whom you interact are space cadets.

    Saying that the free market killed Hostess is akin to saying that the bullet killed JFK and not the assassin. The reality is that unions destroy businesses. Hostess is the latest murder victim.

    Hostess survived the Great Depression, multiple wars, multiple recessions, energy shocks, banking meltdowns, housing crashes, stock market crashes and everything else under the sun. But it couldn’t survive its unions. The same holds true for entire industries, e.g., steel, textiles, automotive, lumber, etc. For cryin’ out loud had it not been for Taft-Hartley unions decades ago would have destroyed the entire U.S. economy; we’d already be smelling worse than PIIGS.

    Ask youself this question: what’s the strongest segment of the U.S. economy? Healthcare, right? Not even debatable. Well, what percentage of the healthcare industry is unionized? Very minimal. Outside of nursing it’s microscopic. Those items are not coincidental.

    Poorly-rated. Helpful or Unhelpful: Thumb up 19 Thumb down 44

  10. Ron Beasley says:

    A leveraged buyout killed Hostess. Yes less people were buying their products and perhaps the bakers union should have given up some of the things they had been promised but they were saddled with debt as a result of a leveraged buyout. The investment firms will make out like bandits, which is what they are, and 18,000 people are out of work. I don’t really see leveraged buyouts as a useful part of the free enterprise system.

    Highly-rated. Helpful or Unhelpful: Thumb up 27 Thumb down 9

  11. @Tsar Nicholas:

    Have you ever practiced Bankruptcy Law? Because I have, and I know that you’re spouting crap.

    Highly-rated. Helpful or Unhelpful: Thumb up 47 Thumb down 3

  12. @Jeremy:

    Mine too, dude.

    Like or Dislike: Thumb up 3 Thumb down 1

  13. Jenos Idanian #13 says:

    @Ron Beasley: A leveraged buyout killed Hostess. Yes less people were buying their products and perhaps the bakers union should have given up some of the things they had been promised but they were saddled with debt as a result of a leveraged buyout.

    I presume you’re referring to the 2009 buyout by, among others, Ripplewood Holdings (headed up by a prominent Democrat). At the time, Hostess was already in bankruptcy, having filed in 2004.

    So… Ripplewood should have stayed out of it, and let Hostess liquidate back in 2009?

    Hot debate. What do you think? Thumb up 8 Thumb down 13

  14. J-Dub says:

    Hmmm, Ho-Hos by Bimbo?

    Like or Dislike: Thumb up 8 Thumb down 1

  15. J-Dub says:

    How can we survive the Zombie Apocalypse without a stockpile of Twinkies?

    Like or Dislike: Thumb up 6 Thumb down 0

  16. Craigo says:

    @Doug Mataconis: The statistic that stuck in my mind from school (never practiced in this sector) was that a third of Chapter 11s go Chapter 22 within the first five years alone.

    Like or Dislike: Thumb up 2 Thumb down 0

  17. Geek, Esq. says:

    @J-Dub:

    Throw in some Ding-Dongs and we have something vaguely inappropriate as well as unhealthy.

    Like or Dislike: Thumb up 5 Thumb down 0

  18. Rafer Janders says:

    Whatever happens, though, it’s a testament to the fact that no company, no business, is guaranteed to survive forever, and that we really ought to let the market take its course rather than intervening in a process that we really don’t quite understand.

    Tides go in, tides go out. Businesses succeed, businesses fail. You can’t explain that.

    Like or Dislike: Thumb up 4 Thumb down 0

  19. MochaLite says:

    You’re comparing what did happen … a union exercising the nuclear option of a strike, thus preventing Hostess from operating its business, with what might have happened … Hostess failing sometime in the future. That’s a bit like saying we shouldn’t prosecute murderers because their victims will die sometime anyway.

    My sympathies are with the 18,000 workers, whose leaders decided that a 100% pay cut was better for them than an 8% pay cut.

    Finally, yes, I’m a grammar nazi, but please! The possessive of “company” is “company’s”. The word “companies” is a plural.

    Like or Dislike: Thumb up 11 Thumb down 1

  20. @Craigo:

    Yep, and on the consumer side the statistics are even worse. The number of “Chapter 20s” (a Chapter 13 followed within 4-5 years by a Chapter 7) are very, very high

    Like or Dislike: Thumb up 0 Thumb down 0

  21. legion says:

    @Jenos Idanian #13:

    So that could make blaming Republicans a hard sell.

    Nice way to try & redirect the thread, but no dice. Do you see anyone blaming Republicans for this? Also,

    So… Ripplewood should have stayed out of it, and let Hostess liquidate back in 2009?

    Basically, yes. As Doug notes, this was something that was almost certain to happen, regardless of labor negotiations. There are lots of reasons why this happened, but they’re basically business-related, not political.

    And Doug:
    Nice analysis. Very solid work.

    Like or Dislike: Thumb up 9 Thumb down 4

  22. Jenos Idanian #13 says:

    @Rafer Janders: Tides go in, tides go out. Businesses succeed, businesses fail. You can’t explain that.

    Unless, of course, it’s GM and Obama is looking to shore up his support with the unions. In such cases, all bets are off and all laws are suspended.

    Poorly-rated. Helpful or Unhelpful: Thumb up 9 Thumb down 25

  23. Craigo says:

    Worth noting that their revenue dropped from 3.5 billion in 2004, their first bankruptcy, to 2.5 billion in their last fiscal year. This is due entirely to fat-cat union bakers gangsters, and not changing tastes, or chronic mismanagement from an executive team that was awarded hefty raises even as they were preparing for Chapter 11 this year.

    Highly-rated. Helpful or Unhelpful: Thumb up 19 Thumb down 1

  24. Gustopher says:

    6 CEOs in 8 years. Large bonuses for those at the top, and wage and benefit cuts for the workers. Yes, this was a well run company that was destroyed by the evil unions.

    If you cannot pay a living wage to get a job done, than either that job doesn’t really need to be done, or you’re a colossal failure in execution.

    People love Twinkies, so here it is probably the latter.

    Highly-rated. Helpful or Unhelpful: Thumb up 22 Thumb down 6

  25. MochaLite says:

    @Gustopher: Who gets to define what a “living wage” is? And please tell us how you justify bakers’ union officials making $150K/yr. while forcing a 100% pay cut on their members … and on all the non-union employees of Hostess as well!

    Like or Dislike: Thumb up 8 Thumb down 10

  26. sam says:

    @Jenos Idanian #13:

    Keep sucking on that old bitter rag. Loser.

    Like or Dislike: Thumb up 14 Thumb down 4

  27. Michael Robinson says:

    Whatever happens, though, it’s a testament to the fact that no company, no business, is guaranteed to survive forever, and that we really ought to let the market take its course

    Nor any political party, for that matter.

    Ironically, the demographic shifts and changing tastes that have hurt the marketability of the Hostess brands are almost the same demographic shifts and changing tastes that have hurt the marketability of the Republican brand.

    And now here they are, both, brands in crisis, with an eroding base and no clear path to the multi-ethnic rainbow-coalition future of America.

    Like or Dislike: Thumb up 8 Thumb down 4

  28. Just Me says:

    I think it is hard to argue that Hostess wasn’t struggling to turn profit and had been for years (two bankruptcy filings in a decade is a pretty good indication that the company was struggling).

    However I don’t think you can separate the role unions play in the profit margins.

    Also the majority of the 18, 000 people now unemployed weren’t part of the baker’s union. Some of them were part of the teamsters union (who did vote in favor of the new contract agreement) and some of them weren’t part of either union. ONly about 6,000 of those 18,000 were part of the baker’s union.

    I do hope that whoever purchases the various holdings will reemploy some of those 18,000 people.

    Like or Dislike: Thumb up 5 Thumb down 1

  29. john personna says:

    I think this is kind of a random example of non-creative destruction. We are a frequently fat nation which loves its sweets. Somewhat randomly, we choose different ones. Are they better or worse than Twinkies? Probably no difference.

    I notice that Krispy Kreme’s market cap is sitting at 469.96M

    Perhaps we like more explicitly “bad” foods for splurges, and day to day Twinkies die out.

    Like or Dislike: Thumb up 0 Thumb down 1

  30. grumpy realist says:

    @Doug Mataconis: Ditto here; am taking a class in Bankruptcy Law at present.

    Tsar, getting a Chapter 11 plan approved doesn’t mean you have a viable business plan. The company hives off as many debts as it can, sorta recovers, and then the same damn foolishness that sent them into the first Chapter 11 sends them into the next.

    And that’s not even looking at the leveraged buy-out vulture capitalism cases….

    Like or Dislike: Thumb up 4 Thumb down 0

  31. grumpy realist says:

    Oh, and can we stop ragging on the unions when CEOs get multi-million dollar bonuses regardless of how well the company is doing?

    Like or Dislike: Thumb up 14 Thumb down 4

  32. JKB says:

    The free market may have put the company in distress but the union unwillingness to give concessions is what pulled it under. So now the employees are unemployed, lose their pension and benefits, etc. Go….hard line negotiations. We should keep in mind, the union was offered 25% of the company for the concession so they obviously felt nothing now is better than less pay with a, perhaps remote, possibility of a return on investment the investment in the future.

    Anyone who buys the brands should either incorporate them in their current operation or only restart operations in right-to-work states. Obviously, letting the union back in would threaten the resurgence of the brands.

    Hot debate. What do you think? Thumb up 10 Thumb down 14

  33. Just Me says:

    Perhaps we like more explicitly “bad” foods for splurges, and day to day Twinkies die out.

    I suspect snack cakes are still going to sell, but I also agree that behavior with regard to what types of treats we purchase has changed.

    I think in general many people have moved to buying expensive coffees and coffee shop pastries as their splurges over twinkies (I know if I am going to go for a sugary treat a Hostess snack cake doesn’t make the cut of possibilities).

    Like or Dislike: Thumb up 1 Thumb down 0

  34. wr says:

    @JKB: So now you believe employees have an obligation to work for less than they need to survive so that other people can keep their jobs? Because that’s the only way your whine about the evil unions makes any sense — the members of the bakers’ union didn’t want to work for the crap wages and benefits they were being offered — but according to rightie world, they are morally required to sacrifice themselves to keep other people working.

    Meanwhile, manages leeches off millions, and that’s peachy keen. Because, you know, they’re rich.

    Like or Dislike: Thumb up 9 Thumb down 6

  35. wr says:

    @MochaLite: “Who gets to define what a “living wage” is?”

    In this case, the bakers who were offered a salary they felt was lower than that.

    Or do you think they’re required to work for less than they want simply because you don’t like unions?

    Like or Dislike: Thumb up 9 Thumb down 5

  36. Just 'nutha ig'rant cracker says:

    @wr: Yeah, that’s the one. You should work for lower wages because I don’t like unions. Perfect!

    Like or Dislike: Thumb up 2 Thumb down 2

  37. Andre Kenji says:

    Grupo Bimbo sells these snacks here in Brazil, by the way:

    http://cassitcha.files.wordpress.com/2010/05/08.jpg

    To me, they looks like to be better than Twinkies.

    Like or Dislike: Thumb up 1 Thumb down 0

  38. Whitfield says:

    @Geek, Esq.: Where are you getting this free food with nutrition and natural ingredients? Around here, natural/organic food grocery stores are few and the prices are three times what regular food cost.
    Tried a deep fried Twinkie a while back: Greatest thing since funnel cakes!

    Like or Dislike: Thumb up 3 Thumb down 1

  39. Drew says:

    What has been odd is that its been hard in a simple article search to get an operating profit number, leaving one to speculate about what drives the $150MM-ish negative net income number.

    But if interest charges are, say 12%, with penalty rates, you have a hundered million negative. Restructuring charges might be $25-50MM, which leaves you with about zero to $25MM operating profit. Given that normal debt to cash flow, even in a troubled and large company shouldnt be more than 6 or 7 times, its a death spiral when you have $700MM in debt.

    Doug correctly points out that bankruptcy is always the last resort. The PE guys will probably get completely wiped out. Even if the brands and some ops are worth a couple hundred million (the previous bid for the company in BK was something like $550MM) the lenders might get 30 cents on the dollar, and the operations will be greatly downsized.

    Bimbo is making a big move in both the grocery aisle (bread) and convenience stores (snacks). It wouldnt surprise me to see them buy the brands and 20% of the ops and try to make a go of it. They will no doubt force labor to take terms just declined by labor. Its the work rules, not really the wages.

    This is really ugly, even if 4-5 brands survive.

    Like or Dislike: Thumb up 2 Thumb down 0

  40. JKB says:

    @wr:

    The unionistas made a choice. They chose no job over a job with less pay (even though they were offered a stake in the company as well). Now the baker’s union doesn’t have a job, the teamsters, who gave concessions, don’t have jobs and the non-union workers don’t have jobs. If the concessions were below what was needed to survive, then they made the right choice. If not, then they now get paid less than they need to survive because they don’t have a job. Hopefully, they’ll get new jobs but then this is the Obama economy with the new normal of high long-term unemployment.

    But you are correct, if the unionistas will be better off unemployed, then that was the choice they should have made. Now, instead of less pay, they’ve got no pay, well, except unemployment for a time, but they do have free time.

    Like or Dislike: Thumb up 8 Thumb down 5

  41. Drew says:

    PS

    Careful with overestimating the “venerable” brand values. How many Oldsmobiles are sold now?

    Like or Dislike: Thumb up 1 Thumb down 1

  42. JKB says:

    @wr: Meanwhile, manages leeches off millions, and that’s peachy keen. Because, you know, they’re rich…..

    Democrats.

    That’s right, the evil private equity and the lenders in this deal are all big Democrats. And all that means is that rich Democrats try to save companies just like evil Republicans, bargain hard with unions and sometimes fail.

    Like or Dislike: Thumb up 6 Thumb down 7

  43. wr says:

    @JKB: That’s right, JKB. All workers should take whatever pittance the PE masters tell them to. Two cents an hour — hey, better than being unemployed! Meanwhile, the PE bosses never cut their multi-million dollar salaries a nickel — and why should they? They’ll get their “management fees” no matter what happens.

    Because work is completely unimportant. The actually making of the Twinkies doesn’t matter. The only thing of any real importance is that a bunch of Wall Street assholes get multiple millions of dollars dancing on the corpses of working people.

    Wall Street vultures — they’re the makers. The people who actually, you know, make things — they’re just moochers.

    Like or Dislike: Thumb up 4 Thumb down 6

  44. wr says:

    @JKB: Who said anything about party? What the hell difference does it make if the PE scumbags are Democrats or Republicans, when they’re stealing the wages from the people who are actually doing the work — people who might be Democrats or Republicans?

    This is matter of PE vultures looting companies and destroying lives while walking away with their millions. The fact that you think you win by announcing that they belong to one party or another is simply pathetic.

    These people are scum. Those who support them are scum. Those who consistently insist that capital is the only thing that matters and that labor is unimportant are scum. Republican or Democrat.

    Like or Dislike: Thumb up 6 Thumb down 5

  45. Boyd says:

    I just wish you folks who yell “The union killed Hostess” and their opponents who yell “the fat-cat managers lined their own pockets, and they really killed Hostess” would link to your “facts.” As far as I can tell, you’re all lying.

    Back up your claims, or just be relegated to “Internet hack” status, bozos.

    Like or Dislike: Thumb up 4 Thumb down 2

  46. anjin-san says:

    My off the top of my head feeling is that the Hostess brand was very tired. I loved the cherry pies back in the days when Nixon was a popular president, but if I had young kids I would try very hard to keep them away from these sugar/carb bombs. Their products are old school, but with no cool retro vibe. Think of it as evolution in action.

    Good post Doug. I’m curious how you like practicing bankruptcy law. My dad was a fairly prominent bankruptcy lawyer in SF back in the 60s & 70s, but he got out of it and took a corporate general counsel position after the bankruptcy reform act in the late 70s.

    Like or Dislike: Thumb up 1 Thumb down 1

  47. Jenos Idanian #13 says:

    @wr: All workers should take whatever pittance the PE masters tell them to. Two cents an hour — hey, better than being unemployed!

    So, basically, these workers are “owned’ by their jobs? They can’t quit? But they can keep someone else from having that job?

    Like or Dislike: Thumb up 4 Thumb down 7

  48. Herb says:

    @Jenos Idanian #13:

    “But they can keep someone else from having that job?”

    Nice try.

    You really have no deeper understanding of this issue other than “unions bad,” do you? There was no saving these jobs, man.

    Like or Dislike: Thumb up 5 Thumb down 2

  49. Jenos Idanian #13 says:

    @Herb: Funny, the Teamsters aren’t overly thrilled with the bakers. They’d agreed to the deal.

    If the bakers didn’t want the jobs, they could have quit and found other work more to their suiting. Instead, they not only killed their jobs, but killed the jobs of 2 other people per baker. (Roughly.)

    “There was no saving these jobs?” Maybe some could have been saved. Maybe they’d have bought a couple more years. We’ll never know — 6,000 bakers chose to kill 18,000 jobs.

    The only winner here? Mayor Bloomberg. One less thing for him to ban in NYC.

    Like or Dislike: Thumb up 5 Thumb down 3

  50. Just Me says:

    We may not have all the details of pay and benefits and where concessions were being made but it clearly wasn’t 2 cents an hour because at least one union decided to take the deal to preserve their jobs (they at least thought keeping the job for less was the better option). It is pretty clear that 6,000 decided they didn’t want jobs or maybe their union had them convinced Hostess would cave and accept their terms. Either way the Baker’s just put 12,000 people some of whom had no vote and others who voted in favor on unemployment for Christmas.

    So leave out the hyperbole.

    I am not convinced had the baker’s union decided to take the deal that Hostess was going to stay in business anyway, it is possible that taking the offer would have kept the jobs around only a little longer before the company went out of business.

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  51. Herb says:

    @Jenos Idanian #13:

    “If the bakers didn’t want the jobs, they could have quit and found other work more to their suiting.”

    First, don’t confuse the end result with the goal. The bakers very much wanted their jobs. They just didn’t want yet another pay cut to prop up a failing company.

    Maybe some could have been saved. Maybe they’d have bought a couple more years.

    The only way the jobs could have been saved was if the company was taken over by a better managed firm. And buy a couple more years? They already did that….twice.

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  52. john personna says:

    @Just Me:

    It is pretty clear that 6,000 decided they didn’t want jobs or maybe their union had them convinced Hostess would cave and accept their terms. Either way the Baker’s just put 12,000 people some of whom had no vote and others who voted in favor on unemployment for Christmas.

    I’m not sure a serious student of negotiation would fault either side. There is either a deal, or no deal, and neither is more noble than the other. If there was a deal, both decided that the outcome was beneficial. If there was no deal, one or both sides decided that terms were not beneficial.

    You become partisan if you ask one side or the other to accept undesirable terms for benefit of the second, or third, parties.

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  53. john personna says:

    @Jenos Idanian #13:

    If the bakers didn’t want the jobs, they could have quit and found other work more to their suiting. Instead, they not only killed their jobs, but killed the jobs of 2 other people per baker. (Roughly.)

    You are suggesting that no one should ever renegotiate a contract, even when it comes up for explicit renewal.

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  54. Brummagem Joe says:

    Their products are awful and always have been. Politically the company and Republcans are trying to pin the blame on the bakers union but it looks more like a typical private equity operation gone south. The current private equity owners bought a failing company out of chapter 11 and loaded it with around $850 million of debt, milked it for as long as they could with cost cutting and little or no investment in new products and infrastructure, and when it came to the end of the road essentially dumped it back in chapter 11. The only people who made out here were the PE owners……this is how it works.

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  55. Brummagem Joe says:

    BTW Doug thanks for the paean to free markets naivety. LOL.

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  56. Herb says:

    @Brummagem Joe:

    “Politically the company and Republcans are trying to pin the blame on the bakers union “

    Yeah, I guess that’s convenient if you’re anti-union and ignorant.

    Meanwhile, 5000 unemployed bakers are scratching their heads, going, “Hey, man, I just worked there.”

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  57. john personna says:

    @Brummagem Joe:

    There is also an accretion of obligations with an old company. What did I read? 12 unions and 40 retirement plans?

    New players, like Clif or Jamba Juice (who offer some nutrition with their sweetness) are going to have a simpler model, with less starting complexity.

    Maybe it is like trees that die of their weight, giving light to saplings, etc. I mean, everyone goes on about the 18000 jobs, but we know the whole sector employs millions. We haven’t stopped eating. Novel news snacks are invented every day.

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  58. Whitfield says:

    I know that the union demands was not the only problem this company had: several other problems such as a lot of mismanagement, competition, slow to change, and cash flow. Unions can have some really picky, absurd work place rules. One electrician told me that union rules prohibited him from setting up a ladder; he had to call in someone else to do that, and also a carpenter to drill holes in studs for the conduit and wiring to go through. All of this adds up to extra costs in construction. As far as Hostess goes, it was reported that the union rules required different workers to load the different products onto different trucks: i.e.- One worker and truck for bread, another worker and truck for Twinkies ! Even the Soviet Union could not have come up with something like that!!

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  59. wr says:

    @Just Me: No, Hostess put those people out of work. Not the members of the union who decided they had no obligation to keep working at a particular job if their pay was being cut.

    Of course, Hostess could have kept going. They could have brought in scabs, and if this deal was so darn attractive they would have been fighting off potential workers.

    Oh, but that’s right — private equity vultures can never be to blame. Even while they loot the company of millions in “management fees” and slash their workers’ pay and benefits, even while they bring in a series of CEOs with no experience in the field, even as they run the company into the ground while pulling out their own profits, they are the good guys here, and a bunch of middle class workers who actually make the product are the villains.

    Capital good; work evil, as always. Heck, we ought to reward these PE guys by making sure they only pay a fraction of what working people do in taxes. Oh, no, sorry — we already do that.

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  60. wr says:

    @Whitfield: Wow, a dubious anecdote! Now I’m convinced! Unions really are evil!

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  61. JKB says:

    @wr:

    The company decided to go Chapter 7 after not enough workers crossed the picket line. Bringing in temporary workers would do little since the hope for survival required better labor costs long term.

    Read this analysis by Zero Hedge. You’ll see, the PE investors lost near $170 million. The only people who will get anything is the secured creditors.

    I’m not sure why you are ranting about PE and workers. Either the union gave concessions or the company went to liquidation. The union chose not to agree to the require concessions and also went on strike, thus the PE is liquidating the company and cutting their losses. Are you saying the PE guys should continue to incur losses when all hope of becoming an ongoing enterprise has been quashed? In any case, the company was rapidly running out of money and the equity partners were no longer willing to put anymore money into the operation.

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  62. Jenos Idanian #13 says:

    @Herb: Meanwhile, 5000 unemployed bakers are scratching their heads, going, “Hey, man, I just worked there.”

    Correction: Meanwhile, 5,000 unemployed bakers are scratching their heads, going, “hey, man, I just stopped working — and stopped everyone else from working — there.”

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  63. Whitfield says:

    @wr: My point was that Hostess’ problems had a lot more to do with management problems over the years than the union actions of the present. I also point out legitimate concerns that many businesses have with nitty-pick union requirements and rules in the work place that are illogical and counterproductive. These cases I mention come from friends who are union members. If these were management requirements, then that is their poor judgement. Years ago, the Japanese model in manufacturing took hold in some plants here in which the workers and management worked as a team to make work more productive and increase morale. Union management needs to use that model also, as their members should have some input also. Corporations come and go: there are usually a host of reasons why.

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  64. Lee says:

    @JKB: Apparently the entitlement mentality is bi-partisan

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  65. Lee says:

    @Brummagem Joe: well said

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  66. john personna says:

    What an Internet moment, a bunch of people who deny a steady Hostess habit talking about who’s fault it is that Hostess went out of business.

    I bake my own bread. YMMV.

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  67. The One True Dave says:

    I’m sure plenty of people lamented the death of the buggy whip industry and the gaslight manufacturers, too. More Americans are growing more conscious of what they eat and Hostess’ products are perceived as unhealthy. The market decided.

    Maybe some of the displaced workers will reorganize as co-ops and produce their own products to meet the demand. Who knows? In business, just about any situation can be turned into an opportunity.

    As an aside, who here has had a Gansito? Beats a Twinkie to Hell and back. Imagine a Chocodile (a chocolate covered Twinkie) with strawberry jelly inside it WITH the cream filling. (They’re made by Marinela, one of Bimbo’s brands, by the way.)

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  68. bill says:

    @J-Dub: of course, he’s a smart guy. i doubt if the stock market would have dropped so much if he had won!

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  69. Brummagem Joe says:

    @john personna:

    I suspect the pension plans were one of attractions if there was a lot of cash sitting in them when the current PE owners bought the company out of C11. They appear to have stolen them since or had this escaped your notice?

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  70. john personna says:

    @Brummagem Joe:

    I have no problem with improved protections for pension plans.

    But if Hostess was hot like Snapple, and everybody was munching a Twinkie as they read this thread, that wouldn’t be a problem, would it?

    Scavengers pick over bones only after death.

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  71. David Moorman says:

    @Jeremy: There are other fruit pies in the market you could buy that will damage you just the same!

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  72. Floyd Looney says:

    I thought stupid like this only existed in the New York Times.

    We have no free market. This would tend to disprove it, don’t you think?

    When we have places where bakeries are banned from producing an aroma, when sugar prices are artificially high (2x) by government barriers, when corporations are taxed the highest on Earth, when some companies are given government handouts (Solyndra, etc) and protectionist laws (domestic sugar for instance), when union goons make sure in some states that bread and snacks get different trucks (as an earlier poster noted) and likely make it hard to near impossible to fire bad workers (normal for unions)…..

    can anyone really pretend we have anything close to a free market??

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  73. CPO says:

    @J-Dub:
    We can only hope as that would most likely benefit all.

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  74. CPO says:

    @Brummagem Joe:
    Any proof or just wishful thinking?

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