Bakers End Hostess, and More Importantly, What It Means for Twinkies

November 18, 2012 • Commentary • by

The news has already made its way through social networks and news media as some rejoiced and others mourned: Hostess, maker of Twinkies, Ho Hos, and Wonder Bread, has gone out of business. The process started with a bankruptcy filing in January and was brought to a front this past Friday morning.

Hostess, though, is 82 years old, which is partly how their products became so ingrained in the national experience. What could have possibly undone a company that has survived countless health-food trends and a previous Chapter 11 process? Simply, the bakers union they employed.

82 years of business accompanied a load of changes to the Hostess Company, most recently in their re-invention of the most health-conscious Hostess Brands in 2009. During the dealings, Hostess took on over $860 million of debt. But, ultimately, it was the labor costs would broke the back of the major baker.

The Teamsters, which has 6,700 members at Hostess, said it played an instrumental role in ousting Hostess’s previous chief executive, Brian J. Driscoll, this year after the board tripled his compensation to $2.55 million. The union also hired a financial consultant, Harry J. Wilson, who had worked on the General Motorsrestructuring.

While highly critical of management missteps, the Teamsters agreed in September to major concessions, including cuts in wages and company contributions to health care. As part of the deal, the union was to receive a 25 percent share of the company’s stock and a $100 million claim in bankruptcy.

About a month ago, Mr. Rayburn said, the bakers union stopped returning the company’s phone calls altogether. For its part, the bakery union said the company had taken an overly aggressive approach. David Durkee, the union’s secretary-treasurer, said Hostess had given an ultimatum. “They said, ‘If you do not ratify this, we are going to liquidate based on your vote.’”

The Teamsters stood firm, nevertheless, and shut down operations along a picked line this past week. This proved to be the straw that broke the baker’s back for Hostess, whose executives called it quits with strikes occurring across their manufacturing sites. They have now begun liquidation. And while there remains a chance that the Hostess company manages to sell their idolized Twinkies brand, it remains unlikely amidst a newly health-oriented atmosphere.

In the words of the satirical news group The Onion: “This is your kingdom now, Little Debbie. Rule with mercy.”

Attribution

NY Times Deal Book
The Onion
Image

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