Hostess Brands on the Brink

Arnold Ahlert is a former NY Post op-ed columnist currently contributing to JewishWorldReview.com, HumanEvents.com and CanadaFreePress.com. He may be reached at atahlert@comcast.net.


Few things are sadder than the triumph of ideology over reality. Yet it appears that the bakers union at Hostess Brands, an iconic company best known for such products as Wonder Bread and Twinkies, prefers running the company completely into the ground, rather than accept the necessary cuts in employees’ pay, health and pension plans that would keep it afloat. On Monday, another dose of reality was added to the mix: Chief Executive Gregory Rayburn announced that Hostess would be shutting down plants in Seattle, St. Louis and Cincinnati–permanently. Six-hundred twenty-seven jobs will be lost permanently. “Our customers will not be affected because we will continue to serve them from other Hostess Brands bakeries,” said Rayburn in a press release. “We deeply regret this decision, but..we will close the entire company if widespread strikes cripple our business.”

The unions apparently can’t read the writing on the wall. Hostess filed for Chapter 11 bankruptcy in January 2012 for the second time since 2004. The company cited the high cost of pensions and outstanding debt as the reasons for that filing. In October, the company filed a plan with the federal bankruptcy court in New York. It called for an 8 percent cut to employees’ wages, a reduction in health benefits, and a freeze in pension plan payments for over two years. In return, unionized employees would get a 25 percent equity stake in the company, two seats on its board of directors, and an interest-bearing note worth $100 million. The 8 percent wage cut was part of a five-year deal that included a 3 percent wage increase in the next three years and a 1 percent raise in the final year.

On October 3, Judge Robert Drain of the United States Bankruptcy Court Southern District of New York approved the motion to impose changes to collective bargaining agreements with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM), which represents 6,600 Hostess employees. This decision followed a rejection by the union in September to such cuts. According to Hostess, one of the key drivers of this agreement was the failure to find a third party interested in buying the company. Because that didn’t happen, Hostess was forced to deal with existing lenders who agreed to fund Hostess’s exit from Chapter 11 in exchange for employee concessions.

Ironically, Hostess’s decision to seek relief in court was driven by the fact that the one of the company’s other major unions, the International Brotherhood of Teamsters, voted narrowly to accept the proposed agreement. Teamsters General Secretary-Treasurer Ken Hall characterized accepting the agreement as “a difficult decision.” Hall further noted that the Teamsters were “frustrated at being in the position to bail out the company again, but overall were willing to accept modifications with the hope that Hostess will recover and be in a better position in the years to come,” he said in a statement. Last Sunday, the Teamsters claimed they didn’t know about the impending strike by the BCTGM.

Whether they did or not is largely irrelevant. The BCTGM whose 5,680 workers account for about 30 percent of Hostess’s total work force, kicked off their strike last Friday, citing the “horrendous contract” the company imposed as motivation. “The BCTGM International Union stands in full and uncompromising support of our striking members,” BCTGM International President Frank Hurt said in a statement Friday.

Thus, as of Monday, 23 of Hostess’s 36 plants had picket lines set up in front of them. About half of those 23 plants were still able to produce and deliver products, due to the reality that management, as well as some union members who were not striking, crossed the picket lines to work.

Hostess spokesman Lance Ignon once again stressed what the BCTGM refuses to hear. “If we’re not able to resolve this issue, the company will probably liquidate everything in a matter of days,” he revealed. “There’s a misconception that there is a buyer set to buy Hostess. That is simply not the case. There is no white knight waiting to purchase Hostess and willing to provide better wage and compensation packages.”

Hurt was unimpressed. “Hostess Brands is making a mockery of the labor relations system that has been in place for nearly 100 years,” he said in a statement. “Our members are not just striking for themselves, but for all unionized workers across North America who are covered by collective bargaining agreements.”  He further stressed that while he is aware liquidation is a real possibility “people will only take so much” when it comes to wage and benefit reductions.

Adding to the intrigue, the Teamsters, who crossed picket lines over the weekend and are currently cooperating with the company to deliver baked goods around the nation, may reconsider their position. On Monday, Secretary-Treasurer Hall noted that his union was examining various contract provisions, specifying what actions various Teamster locals can take when another Hostess labor group goes on strike. If it is determined that honoring the BCTGM picket line is contractually sanctioned, the 7,500 Teamsters that represent about 40 percent of Hostess’s labor force will join the walkout.

Thus, the statement by CEO Rayburn, that the timeline to decide whether or not forego re-organization and begin wind-down proceedings can be measured in “days, not weeks,” has made no impression. “This is a situation that needs to be resolved in days and not weeks, so it’s really going to hinge on whether the bakers who are striking decide to come back to work,” Rayburn insisted. He further noted that the bakers union has made no specific demands and that the two parties are not engaged in negotiations. Rayburn also stressed the company has “zero” tolerance for re-vamping the court-ordered deal reached in October.

Last week, the company announced that  a widespread strike would prompt them “to liquidate if we are unable to produce or deliver products” and it would then lay off most of its 18,300-member workforce “and focus on selling its assets to the highest bidders.” Yet the BCTGM remains immovable. On its website, it maintains that even if Hostess emerges from bankruptcy under the current plan, “it will still have too much debt, too high costs and not enough access to cash to stay in business for the long term.”

Ironically, the largest amount of that debt is owed to the unions themselves. When Hostess filed with the bankruptcy court, the company disclosed that its biggest unsecured creditor is the Bakery & Confectionary Union & Industry International Pension Fund, which it owes approximately $944.2 million. Its second-largest unsecured creditor, Central States, Southeast and Southwest Areas Pension Plan, is owed about $11.8 million. Hostess’s entire debt obligation is just over $1 billion. Thus, Hostess workers likely face not only a loss of their jobs, but their pensions as well, if the company goes under.

Hostess workers’ compensation range from $16-$18 per hour on the low end, to more than $80K on the high end. Yet University of Indiana professor reveals the reality of the business model. “The business is very much small profit margins, high labor cost,” he said. “So if you cannot reduce your hourly cost and if you cannot reduce your healthcare expenses, then you just can’t compete. The profit margins just aren’t big enough.”

Are such wages, plus benefits and healthcare, better than nothing? That is for the union workers to decide. Unlike their public sector counterparts, they are faced with the reality that the ultimate arbiter here is liquidation. As of now, that means nothing to the BCTGM. Within the next couple of weeks, nothing may be what remains where Hostess Brands used to be.

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  • Mary Sue

    NOooooo not hostess!

    Wait, all their stuff is way too sugary for me. Man, I'd eat their cupcakes if they weren't frosted, their cherry turnover pie thing if it wasn't coated in icing, and I'd eat twinkies if they were filled with Cool Whip instead of icing.

    • rjr

      I can't imagine a world without Ding Dongs and Suzy Q's.

      • Mary Sue

        Never had the Suzy-Qs.

  • Lillith66

    Bloomberg and Michelle are going to be very very happy!

  • jack peters

    the ceos robbed the employees and the company into collapse, the union decided 12 to 14 hr days for less than min wage has gone on for to long .the long train of ceos and their golden parachutes have destroyed the twinkie not the loyal employees who have had their paychecks destroyed for over 15 years 15000 a year in the first bankruptcy now another 200 a week how do they expect the employees to survive . the teamsters passed the cuts (under protest) the bakers union didnt maybe they are right, time for the losers running the company to go (to jail would be nice) the judge should ask THEM where all the money went.funny the competition doesnt have the same money problems with no pay cuts WHY MMM

    • Demetrius M

      Who the hell supplied you with that garbage information?: My wife's friend worked at the plant in Cincinnati for three years and was making $14.35.hr working eight hour shifts. No complaints from her about working conditions accept now she will be unemployed – just like Obama intended.

    • tagalog

      Yep, and the right should run ideologically rigid candidates because that's the way to win votes among the middle-of-the-roaders.

    • Fred F

      Hey Jack, you need to inform yourself. Seems you are totally misinformed.

    • ghastly

      union jobs at less than minimum wage??!! Guess all that wage skimming is making the union boss's parachute rather golden. MMM

    • NAHALKIDES

      You can't blame everything on the CEO's, Jack. A business must be profitable or it must cease to operate. This means it cannot continue to pay above-market level wages and benefits, which it has up to now because of union coercion. The union's unfair monopoly is what has driven Hostess to this point, not the management.

      One of the great tragedies of the Republican loss in last week's election is that now unions, with the help of the government, will continue to drive companies out of business. The remedy here is to repeal the Wagner Act – if Hostess could hire non-union employees at market-level wages, it could stay in business.

    • DeathbyUnion

      So a 100% pay cut, no insurance is better than 8% and have a job? Just asking

  • kafir4life

    Hi Jack!! It's best to avoid union made goods and services whenever possible. I look for the union label, then buy what's next to it. Invariably, I get a better product, and don't make any contributions to union coffers or democrat politicians. I may be stuck with ObamaCare, but I'll never buy an ObamaCar. They're garbage…..just like ObamaCare and President Stinky (BO) Hisself. Stinks also gets a cut from each car purchased.

  • PaulRevereNow

    If I remember correctly, Hostess was once a subsidiary of RJ Nabisco; which was the largest, most successful baking company in the world. And its been reduced to this. If the company folds, where will those workers go? Once again, labor unions are killing the goose bearing the golden egg. Zero loves it.

    • Mary Sue

      There are licensed Hostess goodies being produced in Canada, you can get your fix for wonderbread and some other hostess goods here.

  • kafir4life

    This couldn't come at a worse time with Washington and Colorado legalizing marijuana. The aftermath could make Sandy look like a sun shower.

    • tagalog

      Colorodoans seem to think that legalizing and taxing marijuana for recreational use will solve the state's financial troubles. I doubt that it will happen, what with the increased lawlessness (street ripoffs, break-ins into the smoke shops, criminal raids on the gardens, drugged driving, and so on) and the increased costs of law enforcement, the burdened court system, and the expense of incarceration. Those things were problems with medical marijuana and will now become worse.

    • jimbo

      Are you refurring to munchies, when a pot head gets all smoked up, and starts to want to munch and jiggle

  • tagalog

    The Teamsters union sees themselves as "bailing out" the company? Wow, that's putting the cart before the horse.

  • Parenthetical Phrase

    The Democratic Party is made up of small identity groups that often have little or nothing in common and often actively work against each other's communities. This situation is typical. The unions bring down a company that hires blacks and Latinos which produce inexpensive foodstuffs for poor people but which is touted as unhealthy by rich (mostly white) Democrats who try to get the stuff either off the shelves or make it highly taxed. The company goes into bankruptcy, they stop paying taxes and the cities where it has plants go the way of Detroit. Any way you cut the cake, all the players LOSE!

    • ghastly

      bravo! that's it in a nutshell. don't forget that the unemployed union workers then go and pull the lever for the next democrat to come along. democrats MUST keep their voters poor in order to get their votes.

      • Parenthetical Phrase

        And that is where union intimidation comes in. It works well and has destroyed many companies and entire industries. Did you know that NY was once the home of the US garment industry? No more. No worker even DREAMED of NOT joining the union and the unions priced themselves out of business. Unions prevent competition which improves industry standards and goods and makes products not more afordable but better in quality and advancements in technology. Can you imagine any high tech company being restricted by heavy handed unions and regulations on the productivity of workers and tech advancements of the products?

        • Parenthetical Phrase

          PLEASE EXCUSE MY TYPO: Unions prevent competition which improves industry standards and goods and makes products NOT ONLY more affordable but better in quality and creates advancements in technology! Sorry about the mistake.

  • LMBass

    Now you folks stop bashing unions! Look at the positive effects they've had on our public education system, the steel industry, and cities like Detroit. That kind of success can infect…er, spread…throughout American industry and commerce.

  • BLJ

    Labor unions = Take, take and take some more. Run by idiots for idiots.

  • Jim_C

    What the problem? Hostess executives upped their own salaries from 30% to over 100% in the last year. They're gonna be OK! Why are you worried? The job creators will be just fine!

    To you liberals who question their actions, I ask: why not take such rewards for yourself at a time when heavily-processed foods are falling out of favor with consumers, your creditors are breathing down your neck and you've done nothing to manage the brand? Take the money, run, and blame it on the union–that's the time-honored way!

    • NAHALKIDES

      Maybe they increased their salaries because they figured the union was going to drive them out of business. The real question is, would they have done so (assuming they did – I don't really trust your assertion) if they had a free labor market (no unions)? It makes no sense to suppose that management would increase their salaries enough to drive the company out of business.

    • Deadly Clear

      You should read the history of the Hostess acquisitions using employee pension funds. You are right about the abuse – but the unions need to police these investments and lobby Congress for regulation… And more importantly, not participate in this unregulated Wall Street securitization Ponzi scheme.

      Had Wall Street not pushed Hostess into acquisitions and Hostess paid more attention to the changing marketplace – it might still be alive. If you don't have the extra cash to buy a company – you shouldn't be allowed to tap the employees pension funds unless the employees own the controlling company and agree to the acquisition.

  • UCSPanther

    I wonder how Unions radicals everywhere will react should the dark days of "bringing in the Pinkertons" return.

    • Jim_C

      Try it, and see.

      I'm sure the American people will understand.

  • The Truth

    Poor Hostess. It's like people expect you to honor the pensions you promised the workers that you worked and worked and worked until they were old and could work no more. Life is so unfair for a pastry factory.

    • Western Canadian

      Yet another worthless comment, from an idiot who couldn’t recognize ‘truth’ if it bit him on his fat and hairy butt.

  • http://twitter.com/surfcitysocal2 @surfcitysocal2

    Well, there goes the Twinkie defense.

  • SD Cat

    The parasite is destroying the host. It's a sad death wish from the union cronies. The only thing is that the workers, who are supposed to benefit, end up losing with everyone else. PaulRevereNow has it correct: killing the Golden Goose not only destroys what we have now, but any future income or benefits (for our children and beyond). Welcome to the new America.

  • DanL

    That's the whole problem with the socialistic scheme of things; they take (by coercion) from producers and give to non- or low-producers. The scheme inevitably unwinds when producers disappear because they cannot compete in an unfair, overregulated and union-bound market. Good-bye Hostess, good-bye Solyndra, good-bye GM, until only the government's left, printing worthless money because no one's left to steal from. That's called the "Weimar moment," and it led to Hitler's rise in Germany in the 1930s. Watch and see — and stockpile your beans, rice and distilled water — and the guns and bullets to protect it — in the meantime

  • http://twitter.com/surfcitysocal2 @surfcitysocal2

    "It appears that the bakers union… prefers running the company completely into the ground, rather than accept the necessary cuts in employees’ pay, health and pension plans that would keep it afloat." Thus, the parasite kills the host in order to join the magical pre-election 7.9% in the unemployment line.

    • Jim_C

      No biggie. The top .1% job creators at Hostess have bilked the coffers for themselves, already, which made those union weenies mad. They'll be OK. I'm sure they'll go create jobs somewhere, with all that dough they deserved from the great job they did managing their brand and failing to keep it profitable in spite of the parasitic chumps who do all the work and had contracts the job creators didn't want to honor.

  • Kuffar

    Thanks to the unions, life’s little twinkie meter is going to hit zero…

    Tallahassie is going to go postal…

  • Mary Sue

    I'm sure at some point if HOstess goes under there will be knockoff twinkies somewhere.

  • MulchMonkey

    I am not usually in favor of unions, but it has come to my attention that management has granted themselves LARGE, even HUGE raises and bonuses. Nobody needs $1.5M a hear to live on. When Chrysler was in trouble, Lee Iacoa went to $1 a year until the company turned around. Now remember, this was in the late 70s early 80s.

  • Looking4Sanity

    18,500 people are now officially unemployed as of this date and the company that sponsored my 2nd grade field trip in 1967 is no more. I still remember my tour of that Wonderbread factory all those years ago. Way to go, Commie thugs. I hope you're proud of yourselves.

    • kafir4life

      The union IS proud of itself.

      • Looking4Sanity

        It won't be long before those union coffers start running dry. It might last a few years longer if they can get the mob union bosses to stop stealing from them.

  • kafir4life

    CONGRATS to Trumpka the Hutt, our union kneeler "amused", and the rest of the union thugs!!! At least those folk won't have to pay thug dues any longer, and can go on President Stinky's food stamp program. They'll have to buy Little Debbie's instead of Hostess tho'.

    Seriously….can you imagine having such low skill levels that you'd be BETTER off being part of a union!!!!! Some are forced to join as a condition of employement (which should be illegal). And can you imagine being so STUPID that you'd allow them to take money out of your check even BEFORE you bought your family one scrap of food!! You'd have to be pretty glum.

    I find it amusing!!

  • Mary Sue

    Saputo Canada has the rights to some of Hostess' goodies, including Wonder Bread. They'll still make it. So far they show no interest in making Twinkies (there's a few Hostess things they do not make) though that may change if there's demand for it? Everybody, go email Saputo and beg them to import into USA!

  • Ghostwriter

    I hope both the union and non-union workers are happy with the Baker's Union now. It's seems that NOBODY'S going to have a job now. And they can thank the Baker's Union for this situation.

    • Mary Sue

      I can see their reasoning now.

      "B-b-but, it's the PRINCIPLE that matters! It's better for the business to fold up and us all have unemployment to collect for 2+ years than take a pay cut!"

  • Deadly Clear

    As long as big business controls America there will be no safe guards and yellow journalism will prevail. It was not the unions who were at fault in the Hostess demise. Corporate Hostess gambled the union pension funds in acquisitions and Wall Street bad (corrupt) investments. Make no mistake Wall Street drove good companies into the ground by encouraging the use of employee pension funds to make questionable acquisitions when they should have been paying more attention to marketing and product development. Unfortunately, the Wall Street derivative industry is pretty UNREGULATED – so no one (employee) has a protected pension.

    Just look at the history of Hostess and when the SEC launched an investigation of the use of employees' pension funds in 2006… it took a payoff (aka settlement) from Hostess corporate. http://www.privco.com/private-company/hostess-bra

    Give me a break – this is where the media should have gone nuts. Maybe it would have forced a lame Congress to regulate the securities industry and possible averted a complete collapse for a lot of companies. But NO – Congress would rather allow Wall Street to line their pockets – at the expense of American workers.

    The only fault I have with unions is that they are not screaming loud enough about the foul use of pension funds – and that's probably because they played the same games gambling the funds away on Wall Street. See THE SUCKER PUNCH on http://www.deadlyclear.com.

  • Max

    The local TV news channels gave some air time to a bunch of loudmouth Shaniqua or Tanisha types who were on strike. They probably thought that Barack was going to stick his nose in this standoff and save them (because he is black, you know). The dumb """"s are now out of work, just in time for Christmas, and I do not feel sorry for them.