While you're probably aware by now that Hostess, the makers of Twinkies, Ding Dongs, and Ho Hos is going out of business, what you may not know is that company executives essentially looted the company at the same time it was going through the early motions of filing for bankruptcy (for a second time) earlier this year.
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.
The CEO who received a pay raise of 300 percent while in the middle of filing for bankruptcy was eventually ousted by the Teamsters union, but the fact remained the company had to commit to restructuring if it was going to survive, and the Teamsters union agreed to make concessions on wages and healthcare contributions.
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.
“The objective was to preserve jobs,” said Ken Hall, the Teamsters’ general secretary-treasurer. “When you have a company that’s in the financial situation that Hostess is, it’s just not possible to maintain everything you have.”
But that wasn't the end of it.
The bakery union refused to agree to another round of concessions because it had already agreed to over $100 million in concessions, and after years of conceding to failed management, union members chose to strike rather than be beaten down any further.
BCTGM International Union President Frank Hurt stated, "The recent claim by Hostess CEO Greg Rayburn that our strike is the reason for the closure of the three bakeries is simply not true. That statement is a continuation of a disturbing pattern by the company of issuing public statements that are erroneous at best and disingenuous at worst. [...]
"Our members are on strike because they have had enough. They are not willing to take draconian wage and benefit cuts on top of the significant concessions they made in 2004 and give up their pension so that the Wall Street vulture capitalists in control of this company can walk away with millions of dollars."
Over the past eight years since the first Hostess bankruptcy, BCTGM members have watched as money from previous concessions that was supposed to go towards capital investment, product development, plant improvement and new equipment, was squandered in executive bonuses, payouts to Wall Street investors and payments to high-priced attorneys and consultants.
DealBook reports that the private equity backers who lifted to company out of bankruptcy after it's previous filing loaded the company up with too much debt to invest in the business, thus contributing to labor costs.
More from Reuters
The company filed for its first bankruptcy in 2004, citing declining sales, high food costs, excess capacity and worker benefit expenses. It tackled some issues - closing bakeries and simplifying some union contracts -- but it did not deal with its debt. It went into the first bankruptcy with $648.5 million in debt, and came out with more than $800 million, according to court documents.
As a result, the company's second bankruptcy-- after less than three years under the control of private equity firm Ripplewood Holdings -- came as no surprise to some workers.
Going on strike as the company was on the precipice of liquidation may not have helped matters, however after years of gross mismanagement, false promises, lavish executive pay, and concessions from the union, employees voted not to commit to another round of cuts to appease investors. Employees had already made repeated concessions over much of the past decade, and the company never turned a corner.
Executives and investors will now ride off into the sunset following the sale of company assets while 18,500 employees will lose their jobs.