Filed under: Capitalism, Domestic Policy, Economy, Health Care, Taxes | Tags: Chapter 7 Liquidation, Hostess Cup Cakes, Twinkies
Good bye, Twinkies; so long, Ding Dongs; farewell Hostess Cup Cakes; Bye, Donettes, Suzy Qs, Ho Hos, SnoBalls, Fruit Pies, Zingers, and Wonder Bread. Where I grew up, it was Eddy’s Bread. The company began with Hostess Cup Cakes in 1919. It wasn’t until 30 years later that the cupcakes got the squiggles on top and the vanilla creme filling.
Twinkies were invented in 1930, in Shiller Park, IL. Hostess baked over 500 million Twinkies a year. In 1999, President Bill Clinton included Twinkies in the millennium time capsule, which led to many jokes about the longevity of Twinkies.
If you have been around for quite a while, you may be aware of the explosion of snacks available in the junk-food aisle of grocery stores. Along with the increase in varieties and brands, which is still going on, has been the war on junk food conducted by the healthy-eating crowd. Twinkies, probably because of the name, were held up as the poster child for junk food, so enterprising folk at State Fairs promptly started deep-frying them. Go figure.
Hostess filed for Chapter 11 bankruptcy in January, which today became a Chapter 7 liquidation. Hostess, previously Interstate Bakeries, emerged from a protracted multi-year bankruptcy in 2009. The story is a long one, and fascinating, with politics, the Teamsters Union and Private Equity Groups — Ripplewood in particular. Hostess asked their unions — Teamsters and the Bakery , Confectionary, Tobacco Workers and Grain Millers International Union for concessions.
Hostess had a highly leveraged capital structure, with little margin of safety, and high labor costs. By 2011, its sales were down about 11% from 2008 and down 28% from 2004. Twinkies remain the best seller. But this time around, the company asked for more money from their lenders, who said no thank you; new concessions from the unions who flatly refused. It’s a near total loss for all. Hostess offered a contract that in exchange for salary concessions from union members, would guarantee them increases in 3 years and seats on the board. The Bakery Workers refused, went on strike, and Hostess shut their doors permanently.
The critical issue is legacy pensions. Hostess has roughly $2 billion in unfunded pension liabilities to its union workers. The union hopes that someone will bu the company and restore their jobs, but the field is overcrowded. Some major may buy the brands, which are still popular, but the jobs are gone. The increased costs of ObamaCare were undoubtedly another major problem, as they have been for so many American companies.
Obama’s strongest union backer, AFL-CIO President Richard Trumka has injected himself into the Hostess bankruptcy blaming capitalism rather than an intransigent union.
What’s happening with Hostess Brands is a microcosm of what’s wrong with America, as Bain-style Wall Street vultures make themselves rich by making America poor. Crony capitalism and consistently poor management drove Hostess into the ground, but its workers are paying the price. These workers, who consistently make great products Americans love and have offered multiple concessions, want their company to succeed. They have bravely taken a stand against the corporate race-to-the-bottom. And now they and their communities are suffering the tragedy of a needless layoff. This is wrong. It has to stop. It’s wrecking America.
This is all complete hooey, and Mr. Trumka should be ashamed of himself. Even the Teamsters Union asked the BCTGM to back down, but it’s over.
Mr. Trumka has most recently been seen at the White House advising President Obama on strategy for addressing the Fiscal Cliff.
So another 18,500 workers will join the ranks of the unemployed, which are already gathering in thousands as a result of the requirements of ObamaCare. More to come.