ONTD Political

Hostess Going Out of Business, CEO Blames Union Strike

10:14 am - 11/16/2012


Hostess, the makers of Twinkies, Ding Dongs and Wonder Bread, is going out of business after striking workers failed to heed a Thursday deadline to return to work, the company said.

“We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike,” Hostess CEO Gregory F. Rayburn said in announcing that the firm had filed a motion with the U.S. Bankruptcy Court to shutter its business. “Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders.”

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.

Hostess suspended bakery operations at all its factories and said its stores will remain open for several days to sell already-baked products.

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.

NBC's Savannah Guthrie read a statement on "Today" from the bakers' union that said: “Despite Greg Rayburn’s insulting and disingenuous statements of the last several months, the truth is that Hostess workers and the union have absolutely no responsibility for the failure of this company. That responsibility rests squarely on the shoulders of the company’s decision makers.”

Rayburn responded that he had been “pretty straightforward in all the town hall meetings I’ve done at our plants to say that in this situation I think there is blame that goes around for everyone.”

He denied that the decision to shut down could be a last ditch negotiation tactic to get the union back to the table.

“It’s over,” he said. “This is it.”

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.

Hostess said that production at about a dozen of the company's 33 plants had been seriously affected by the strike. Three plants were closed earlier this week.

The privately held company filed for Chapter 11 protection in January, its second trip through bankruptcy court in less than a decade. The company cited increasing pension and medical costs for employees as one of the drivers behind its latest filing. Hostess had argued that workers must make concessions for it to exit bankruptcy and improve its financial position.

The company, founded in 1930, was fighting battles beyond labor costs, however. Competition is increasing in the snack space and Americans are increasingly conscious about healthy eating. Hostess also makes Dolly Madison, Drake's and Nature's Pride snacks.

If the motion is granted, Hostess would begin closing operations as early as Tuesday.

"Most employees who lose their jobs should be eligible for government-provided unemployment benefits," Hostess said.

Copyright Associated Press / NBC 5 Dallas-Fort Worth

Source
awfulbliss 16th-Nov-2012 06:09 pm (UTC)
The Teamsters had their own financial experts look at the company's finances and warned the bakers union that massive layoffs were not simply empty threats designed to force workers into concessions. The company was in a horrible place financially and there was pretty much no way out of it besides cutting costs as they could not stay current on their loan obligations. I'm kind of dumbfounded as to the reactions of some around here as if this was Monsanto or something and I'm curious as to what other options people think they had.

Edited at 2012-11-16 06:10 pm (UTC)
layweed 16th-Nov-2012 06:15 pm (UTC)
Thank you for saying this. I have had the same thing on my mind but didn't want to say it for fear of being dogpiled as being anti-union or something. The company was in the process of undergoing bankruptcy and posted net loses of $341 million in 2011. The company also attempted to make up for the 8% pay cut with a slow increase (though not fully back to normal" over 4 years and other compensations like union reps on the board of directors and equity.

I'm not saying management doesn't deserve some blame for this, but it's between a rock and a hard place.

http://dealbook.nytimes.com/2012/11/16/hostess-brands-says-it-will-liquidate/
http://money.cnn.com/2012/11/16/news/companies/hostess-closing/

eta: not to mention the sugary crap that Hostress produces won't be going anywhere. They'll just sell off the rights (or recipes, idk) to some other company who will continue putting it on store shelves.

Edited at 2012-11-16 06:21 pm (UTC)
skellington1 16th-Nov-2012 06:59 pm (UTC)
Recipes and branding rights, probably. You can make a ding-dong and call it a ding-dong.
fightingwords 16th-Nov-2012 07:51 pm (UTC)
Management had plenty of time after the first bankruptcy to come up with a better strategy than to continue with business as usual. Instead, they gave themselves a ridiculous raise.

"Last July, the court documents said, the compensation committee of Hostess's board approved an increase in then-chief executive Brian Driscoll's salary from to $2.55 million from around $750,000. The company had hired restructuring lawyers in March 2011, the creditors said, and filed for bankruptcy protection on Jan. 11."

http://online.wsj.com/article/SB10001424052702304072004577323993512506050.html
amyura 17th-Nov-2012 03:48 am (UTC)
Did I read that right?!? They TRIPLED his already-huge salary?
lone_concertina 16th-Nov-2012 06:52 pm (UTC)
Were C-level pay cuts examined as a potential cost-saving measure?
awfulbliss 16th-Nov-2012 07:24 pm (UTC)
I have no idea as I'm not privy to the negotiations. I doubt that they were, of course, but I couldn't say. I would guess that it would not have made a difference at all based on the information available, though (not to say that they shouldn't be cut, of course). Clearly the factory workers aren't responsible for the fact that Twinkies aren't hot sellers anymore - management is, but that's unfortunately what happens when growth stagnates and you hope to continue operating with a dwindling market while still paying 18,000 people. It's a pretty horrible situation, and a lot of people will worse off now.
romp 16th-Nov-2012 08:21 pm (UTC)
So you agree it was shady for the CEO to say Hostess is folding because of union demands?
awfulbliss 16th-Nov-2012 09:04 pm (UTC)
Depends what you mean, I guess. He says that they can't continue business operations during a strike of this magnitude. That's obvious and I'm sure everyone would agree. I think that based on the information available that Hostess was going fold anyway and that failure to reach an agreement simply made it come about faster. I'm guessing large cost-cutting would've prevented the inevitable for a little while longer, but Hostess did not get to the point that it did because of labor costs.

Edited at 2012-11-16 09:05 pm (UTC)
fightingwords 16th-Nov-2012 07:47 pm (UTC)
Actually--CEO compensation went UP after the first bankruptcy: from $750K to $2.55 MILLION. They made out like bandits at the C-level.
idemandjustice 16th-Nov-2012 11:47 pm (UTC)
Do you have the source for that? I believe you, and just want to be able to have the source.
fightingwords 16th-Nov-2012 11:56 pm (UTC)
"Last July, the court documents said, the compensation committee of Hostess's board approved an increase in then-chief executive Brian Driscoll's salary from to $2.55 million from around $750,000. The company had hired restructuring lawyers in March 2011, the creditors said, and filed for bankruptcy protection on Jan. 11."

http://online.wsj.com/article/SB10001424052702304072004577323993512506050.html
celtic_thistle 17th-Nov-2012 12:23 am (UTC)
UGH UGH UGH
butterbuns 16th-Nov-2012 06:57 pm (UTC)
That's kind of what I was wondering about, because really, if they've already filed for Chap 11 once this year, stands to reason they really can't afford it..
danger0usbeans 16th-Nov-2012 07:06 pm (UTC)
They could have cut the obscenely huge salary of the CEO instead.
bushy_brow 16th-Nov-2012 07:21 pm (UTC)
HDU! The CEO deserved that huge salary for running the company into the ground. Oh, wait...
skellington1 17th-Nov-2012 08:54 pm (UTC)
I keep putting that in the 'goals and aims' section of my resume, but for some reason no one's willing to accept "Earn multi millions running large companies into the ground" as a hireable qualification...
bushy_brow 18th-Nov-2012 02:29 am (UTC)
Maybe try applying at Bain? ;-P
awfulbliss 16th-Nov-2012 07:29 pm (UTC)
Sure. Of course they should have (even though have no idea what his compensation is, do you?). Then what? Have you looked at the financial statements? What course of action do you think could be taken to keep 18,000 people employed at a company rapidly losing market share and becoming increasingly unlikely to stay current on its loans? The only people who have seen their finances are the Teamsters, and they advised the bakers union to at the very least, hold a secret ballot vote on whether to go back to work or not, in addition to warning them that the company was in tremendously bad shape.

Edited at 2012-11-16 07:31 pm (UTC)
notgarystu 16th-Nov-2012 08:20 pm (UTC)
As stated elsewhere in this thread:

"Last July, the court documents said, the compensation committee of Hostess's board approved an increase in then-chief executive Brian Driscoll's salary from to $2.55 million from around $750,000. The company had hired restructuring lawyers in March 2011, the creditors said, and filed for bankruptcy protection on Jan. 11."

So they call for an 8% cut to workers' wages, but hey, the CEO's salary gets doubled. Their priorities were skewed, and as usual, the workers are the ones who get fucked over.
awfulbliss 16th-Nov-2012 08:53 pm (UTC)
Again, his salary should be cut. Then...what exactly? Based on the information available and the numbers provided, after the executive compensation is cut, do you think the company is really in any better shape than it was previously with declining business and not being able to meet loan obligations?
amyura 17th-Nov-2012 03:51 am (UTC)
Tripled. 750K times two = 1.5 million.
beetlebums 16th-Nov-2012 08:20 pm (UTC)
C/p from a comment above


"Last July, the court documents said, the compensation committee of Hostess's board approved an increase in then-chief executive Brian Driscoll's salary from to $2.55 million from around $750,000. The company had hired restructuring lawyers in March 2011, the creditors said, and filed for bankruptcy protection on Jan. 11."

http://online.wsj.com/article/SB10001424052702304072004577323993512506050.html

Read more at ONTD Political: http://ontd-political.livejournal.com/10216802.html#comments#comments#ixzz2CQ2zNzvU
danger0usbeans 16th-Nov-2012 09:13 pm (UTC)
"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."

Source: http://thinkprogress.org/economy/2012/11/16/1203151/why-unions-dont-shoulder-the-blame-for-hostesss-downfall/
liret 16th-Nov-2012 09:50 pm (UTC)
I don't think they're horrible for closing, but it seams petty to act like it's because of the employees. Like I said in another comment, employees have the right to decide under what circumstances they're willing to do a job. When a company changes the circumstances, they can't act offended if people aren't willing to accept it. Saying that Hostess is going bankrupt because the employees wouldn't accept the contract gives the impression that's what went wrong with the company - these specific employees and their strike. But this isn't what caused the problems, it was just the last thing that could have saved them.
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