Don't fall for the Wall Street Journal & company hype about the Hostess shutdown. In their version, it's all about “greedy unions.” Yes, the company was bled dry – but not by the workers: this is yet another case of vulture capitalism at work.
Too many in the media are happy to just rewrite Hostess management press releases on the issue. For example, here's this nice, long Reuters article about the shutdown:
Hostess managers have complained that terms of many of the 300 labor contracts that the company has in place have bogged down its ability to be both nimble and cost-competitive.
“The union has been the death of this company,” said a human resources manager who recently left Hostess.
…. because I guess that's easier than actually looking at the history of the dispute. Let's give them a hand with, say, actual journalism instead of lazy stenography. This handy little infographic is a start:
This graphic doesn't touch on one really important aspect of this dispute, but the Wall Street Journal covered the issue in April:
Creditors of Hostess Brands Inc. said in court papers the company may have “manipulated” its executives' salaries higher in the months leading up to its Chapter 11 filing, in what the creditors called a possible effort by Hostess to “sidestep” Bankruptcy Code compensation provisions.
In fact, this whole issue is a “Bain Capital template” for how to break unions, bleed companies dry, lay off workers, and laugh all the way to the bank. David Stockman wrote about it in October:
In truth, LBOs are capitalism’s natural undertakers—vulture investors who feed on failing businesses. Due to bad policy, however, they have now become monsters of the financial midway that strip-mine cash from healthy businesses and recycle it mostly to the top 1 percent.
CNBC touched on this issue in an interview with Hostess CEO Greg Rayburn:
Greg, you are owned by private equity ripplewood, and when you think about the leverage that was put on the company, was that a mistake? did you crack some of this up to the structure of this company and how it's not been operated necessarily but financed?
“It's a good question. i do turnarounds for a living so i see a lot of these situations. i came into this situation in february and i have said in town hall meetings in plants there is plenty of blame to go around. i think management was poor. i think a lot of decisions were poor. i think the leverage prohibited the company from making capital investments that it should have been making and i think that was a mistake. but then you add on legacy pension and liabilities from the unions…..”
Yep, the private equity firm bought the company, loaded it up with debt, siphoned off the profits, underfunded the contractually-obligated pension payments by $944 million, and shuffled through 6 CEOs in 8 years.
At the same time, company executives were insulated from the pain:
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.
Looks as though the vulture capitalists will once again float to the top of the sewage pond. After shedding pesky employees and walking away from almost a billion dollars in pension obligations, they'll sell the brands off, cake by cake, to other vulture capitalists:
Pabst Brewing Co. owner C. Dean Metropoulos & Co. is considering an offer to buy Hostess Brands Inc., which said today it plans to liquidate its business.
“Our family would love to purchase these iconic brands,” Daren Metropoulos, a principal at the private-equity firm, said today in an e-mail. “We have analyzed this opportunity very carefully for a few years now. Shedding the complications of the unions and old plants makes it even more attractive.”
Yep… analyzed the “opportunity” for “a few years.” The fix was in and now all that remains are worker pink slips and owner profits.
Let's distill this behavior down to its essence. It's like stealing a car and selling it for parts. Only theft on this grand of a scale is actually legal.