Was Hostess' Death a Murder, Suicide or Natural Causes?

Or was it all three?

The Teamsters believed Hostess was asking them once again to carry it into another inevitable bankruptcy on their backs, but they stayed at the table. The company didn't help its case by pulling the plug on pension contributions in July 2011. By January 11, 2012, with negotiations moving glacially, Hostess filed for bankruptcy in a White Plains, New York, federal court. There, the company whistled the same tune the unions heard the last time — its financial straits stemmed from an overwhelming labor burden.

Over the yearlong bankruptcy, management did a hell of a job selling that story. In April, Hostess' creditors discovered the company got around Chapter 11 rules governing executive compensation by giving its top managers huge raises before it filed for bankruptcy. Driscoll got a 300 percent raise to $2.5 million a year. Other executives received raises of between 35 and 80 percent. (Following an outcry, they were reversed.) Then, in February, Hostess petitioned to give Driscoll a $2 million bonus with another $2 million severance package if he was fired without cause or if the company liquidated. According to the court papers, "... Mr. Driscoll is key to re-establishing [Hostess'] competitive position going forward."

And here was management, pleading poverty to the union bosses while asking to pay its CEO millions in the midst of a crisis. The bonus package was a nonstarter, of course. The next month, the "key" and irreplaceable Driscoll resigned without explanation. In an internal email obtained by a committee of Hostess' unsecured creditors (namely the unions and their shafted pension funds), Driscoll cited "bargaining issues."

Catherine Downes
Catherine Downes

Details

The negotiations ground on, each party with skin in the game trying to minimize its give, according to a union official close to the discussions, who described them as "confrontational, in-your-face style." Management tried to squeeze wage cuts and work rule changes out of the unions. The unions dug in on how much they'd concede, all the while demanding that the company reduce its debt to sustainable levels. The hedge fund lenders — who held the trump card, owned all that debt and had already taken a haircut during the last bankruptcy — were prepared to walk away from the table and collect what they could by selling Hostess off in pieces. And Ripplewood, the union-friendly private equity firm? By all accounts, its equity stake in Hostess had been completely wiped out. If it had planned on flipping Twinkie for a quick buck, Bain-style, it failed miserably. By the end, Ripplewood didn't even have a seat at the negotiating table.

Finally, in August, Hostess management said it had gone as far as it would go. Not only had the Teamsters (with no help from the bakers, to be sure) convinced management and the lenders to invest in much-needed upgrades and product development, they scored seats on the board of directors and an employee stake in the company worth as much as $75 million. Each worker would hold around $7,000 in Hostess equity, according to a source involved in the negotiations. Even more incredible, the hedge funds grudgingly accepted another haircut on the Hostess debt they owed. The unions would, of course, have to give too, but this deal — the product of 13 months of negotiations — was as good as it was going to get. If the unions wouldn't take the offer, the company would fold forever. The bakers union and the Teamsters put Hostess' last, best offer to the rank and file in September. The agreement called for a 30 percent cut in wages and benefits, with an 8 percent wage cut effective immediately.

The Teamsters voted by ballot to approve Hostess' offer by a margin of only a few hundred out of 4,400 votes.

Frank Hurt, the bakers union president, who had utterly abdicated his role at the bargaining table, neatly summed up the prevailing sentiment in his halls: "I would never sign this piece of crap."

A source familiar with the negotiations says the bakers union reps had approached a private-equity firm about taking a stake in Hostess. The deal the bakers union bosses proposed could be less painful for their membership, but one of its central tenets was laughably outlandish. For it to work, Hostess would have to eliminate all Teamster drivers from its delivery force. Such a plan, for obvious reasons, wouldn't fly, couldn't even get off the ground. Yet it may be one reason why the bakers union leadership was so hostile to the deal on the table — it simply thought it could do better. Or it did, until that prospect fell through. Then they virtually assured the bargain all the other parties had worked for would fail. Instead of mailing out ballots to its membership, like the Teamsters had, they held voice votes in their union halls. After all, who wanted to be the guy saying, "Wait up, fellas, let's think about this for a minute," after his brothers and sisters next to him had already thundered "Hell no!"?

Either way, it worked. The bakers shot the proposal down by a nine-to-one margin. Hummel explained his vote this way: "It would be impossible for me to just go out and replace the job I had. But I could replace the job they were trying to give me all day long."

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28 comments
lobar
lobar

1 down,,2872 to go,,,good ridance! These go straight to ur arteries

pak152
pak152

can't wait to fully read this article to see how one-sided Brantley has made it

j.walter.miller
j.walter.miller

50k a year for clerking on a dock?  Are you serious?  That is a 10 dollar an hour job max.

Sharon_Moreanus
Sharon_Moreanus topcommenter

Hostess is Irving based...not Dallas.

Next thing we'll see here is that they are going into partnership with the Lagrange folks and opening in Deep Ellum.

bluebarnstormer
bluebarnstormer

Overall this is a great story that covers many of the details that are left out of most media reports. I appreciate you pointed out that both Unions gave concessions the first bankruptcy and the hedge funds failed to live up to their end of the deal- fixing infrastructure and running the company. All while giving themselves repeated bonuses. 

There are a few things wrong though. You discuss this as if the Bakers refused to negotiate with the company. That is false. The hedge funds were only willing to negotiate in bankruptcy court and refused to work out a deal in head to head negotiations, as is the historical standard. Negotiating in court is not a negotiation. The Bakers know the history of the judge and the hedge funds involved and saw NO reason pretend like we would be treated fairly. At this point, the hedge funds had already stolen our pension contributions ($4.25 an hour) and the judge had approved the theft. 

You also portray the Teamsters as 'taking a lead' because of the (false portrayal of) Bakers as not negotiating. The Teamsters do not 'lead' the Bakers and thank goodness for that. They failed to enact the will of their membership and everyone who worked there knows it. As Mr. Storz attested to in this article. You point out the narrow vote of 4400 Teamsters but fail to mention the 'disqualified' ballots outnumber the 'yes' votes.

I also find the printing of the story about the Bakers alternative offer highly suspect. I have been immersed in Hostess news for years and am an active Union member. I have never heard this in my life until this moment. Who is the source of this claim? How do you know that they aren't misrepresenting the deal proposed? Why are they unnamed if they are telling the truth? Did you confirm this with anyone? Apparently not with any officials at the Bakers Union, as you point out. 

Worst of all there's this. "Instead of mailing out ballots to its membership, like the Teamsters had, they held voice votes in their union halls." Says who? I voted by secret ballot in Lenexa, KS- the first bakery to vote. I can't speak for every bakery but clearly whoever told you that lie cannot either. Someone should ask the Teamsters why a mail in would be better since theirs was a colossal failure, and offended the MAJORITY of their membership at Hostess.

This article is fairly accurate about the company but is too generous to the Teamsters and too speculative about the Bakers. But thanks for including the previous concessions and the reasons the Bakers didn't trust the hedge funds.

And please stop using the phrase 'Union bosses', they are elected officials who are supposed to do what they are told by the membership, not the other way around. Maybe the Teamsters confused you.

bluebarnstormer
bluebarnstormer

@j.walter.miller You should reread the article. I made $34,000 on the dock BEFORE the cuts they imposed this bankruptcy. After 5 years the cuts would have that same job around $28,000 a year. It never ceases to amaze me how people will mock what someone makes at a job they know nothing about. And for the record, it is less than the baking industry standard for mass production in the US. Now how much do you make and what do you do? Shall we all debate it with little info?

pak152
pak152

@bluebarnstormer"And please stop using the phrase 'Union bosses', they are elected officials who are supposed to do what they are told by the membership, not the other way around." really? union 'officials' do what the membership tells them? do the official ask the members if they want union funds to go totally to the Democratic party?

bluebarnstormer
bluebarnstormer

@pak152 
 Any Union could vote to not contribute politically. Do you think they are required by law to contribute? They choose to because it is common sense. Sorry if that is too democratic for you when it doesn't end the way you want it. If you don't like what the Union does then get a job without one. You know, like the vast majority of jobs.

j.walter.miller
j.walter.miller

@bluebarnstormer @j.walter.miller You got a raw deal but you always have the opportunity to work for someone else.  A year of pension payments shouldn't dent your retirement plans too badly.  I don't have a pension at all.  I am planning my own retirement funding and managing my own investments.  That task is far to important to be trusted to any third party.  If my employer stole from my paycheck I would take it up with the Texas Workforce Commission and the Texas AG.  If I couldn't be made whole I'd find another job pronto.  I know you feel wronged by these people but you really have to look forward instead of dwelling on the past.  You can't change what happened.  Your attitude will determine what success you may have in the future. 

bluebarnstormer
bluebarnstormer

@j.walter.miller I have never said anything to imply that Hostess is the only employer out there. I responded to your original comment that falsified and ridiculed my earnings. I said they stole money from my paycheck and closed the plant to sell of the brands after stripping the Unions of their rights. I said if we don't do something about it then hedge funds will continue to destroy the middle class. I said looking away because you got it good doesn't change that you can be stolen from too.

You seem to be saying that since you have it good then everyone else should just deal with what happens to them. I will not be stolen from and be quiet about it. Maybe you would be. But I would call it wrong no matter who was stolen from, even if they stole from you.

Did you miss the part where they collected $4.25 an hour from our paychecks for our pension for over a year but didn't send it to the pension? Or the part where the judge ruled it third tier debt and waived it? Did you catch the part where the secured debt includes the loans and interest that the hedge funds gave themselves but doesn't include the stolen pension funds? Maybe you missed that the Federal Pension Guarantee Corporation isn't going to help us because they don't guarantee failing companies that steal from employee paychecks.


But hey, at least you got it good. I should just give them my car while we're at it.

j.walter.miller
j.walter.miller

@bluebarnstormer @j.walter.miller Small businesses employ the vast majority of Americans.  Statistically speaking, it's quite unusual to work for a huge firm if you are employed in this country.  I think you might have misunderstood the industry lingo, "boutique shop".  That term simply means "highly specialized small business"; not a retail store selling anything.

bluebarnstormer
bluebarnstormer

@j.walter.miller They sell at least 500 million Twinkies a year. Hostess had total sales of $2.5 Billion last year. The idea that people are more health conscious is a myth. There may be healthy people out there but America is fatter and less healthy than ever. Diabetes has reached epic proportions. Today's kids are the first generation to have a lower life expectancy than their grandparents in US history. You can blame a lot of things for the Hostess failure but 'healthy living' ain't on an honest list.

j.walter.miller
j.walter.miller

@bluebarnstormer @j.walter.miller The timing is serendipitous. The compensation adjustment corresponds with year end performance reviews.  The advantage to working for such a small, boutique shop is that I am able to get my raise and bonus now instead of having to wait till April if I worked for a huge firm like IBM.

j.walter.miller
j.walter.miller

Today has been awesome.  I found out this morning that my Linked In profile is in the top 5% of profiles viewed in 2012.  That means lots and lots of prospective employers checking me out.  I also got my year end review numbers too.  Raise and bonus.  Score!

j.walter.miller
j.walter.miller

@bluebarnstormer @j.walter.miller You're a baker, right?  Get a job with another bakery.  What are you doing for work now? Is it possible that people just aren't eating Twinkies anymore because they are health conscious?

bluebarnstormer
bluebarnstormer

@j.walter.miller Hedge funds seek money. Not just 'poorly managed' companies. Hostess was managed much better before the hedge funds took over for the final 8 years of biz. 82 successful years of innovation followed by 8 of piracy. 

Everything is for sale, including your company and you know it. As far as 'massive labor costs' Hostess Bakers were paid less than the national average for mass production bakeries. We make less then Sara Lee (the largest bakery) and General Mills workers nationwide. Those companies are profitable and have the same Union I am in. Hostess failed because hedge funds wanted to strip the Unions and sell the brands, that was the goal all along. It wasn't the Bakers who bankrupted it.

I will 'bad-mouth' this disaster of an economy until people finally see the truth, in other words, forever. Nothing you have said gives me hope that the average person even understands what's going on. Good luck in India, training your replacements.

j.walter.miller
j.walter.miller

@bluebarnstormer @j.walter.miller My employer is not attractive to hedge funds.  We are bringing in boat loads of cash so the fund would have to pay top dollar to acquire our company.  Since we are privately held I can tell you with certainty we are not for sale.  Since I own shares in this company any eventual sale will benefit me personally.  Hedge funds typically look for businesses that are being poor managed that can be bought at a deep discount.  Some of the malady that makes a company a good target is massive labor costs due to unions.  My occupation is non-union and it's going to stay that way.  Competitive.  If something were to happen to this employer I've got dozens of options for even higher paying jobs at my finger tips.  I'm sorry if that infuriates you but I won't let you bad mouth our entire economy.  Parts of it are doing really well.

bluebarnstormer
bluebarnstormer

@j.walter.miller "software everywhere' is supposed to prove something? They don't need to produce it here in this country and if hedge funds get a hold of your employer you can bet they will look into how to move overseas. I had a 'severance package' in my contract with the company too, but got nothing because the bankruptcy court ruled they didn't have to pay it to us. It was in the contract! People need to stop pretending that they are 'special' (hint: you're not) and accept that we need to look out for the economy as a whole. Allowing hedges to screw 'others' only leaves the door open for them to screw you. 

As far as 'I promise there are plenty of jobs for anyone willing to make a change.' BS unless we all plan to move to third world countries. Not every underemployed or unemployed person can switch to software and get a job. And what would you tell all these people when they are outsourced and laid off again? They won't be surprised but apparently you will be. 

j.walter.miller
j.walter.miller

@cruz.dolores @j.walter.miller Look around you.  There is software everywhere.  Every traffic camera, every ATM, every mobile phone, every cash register, every car, every building.... everything depends heavily on computers and software.  I get a half a dozen phone calls, emails or linked in messages a week offering new job opportunities.  I was laid off once in 2008 from a start-up that ran out of ramp (cash) due to the severe downturn.  I got 2 months severance and found another job in 4 days making about 12k more.  If you are willing to change occupations I promise there are plenty of jobs for anyone willing to make the change.

cruz.dolores
cruz.dolores

@j.walter.miller You are living in a fool's paradise. Your pink slip will come sooner or later. And since you're so smart and skilled, they will probably force you to train your foreign replacements, holding your severance, reference, and unemployment eligibility hostage until you do. That's how they've been rolling in corporate America.

j.walter.miller
j.walter.miller

@bluebarnstormer There are some types of low end software jobs that can be off shored efficiently.  What I do isn't that kind of work.  Software engineering enjoys negative unemployment (there are far more jobs available than qualified engineers to fill them resulting in fierce competition, stellar compensation/benefits and an awesome quality of life).  The software that is built today automates many, many lower end jobs that were once done by humans.  There are more jobs than ever in software but a shrinking number of manual labor type jobs that used to be plentiful 40 years ago.  Software engineering wages have continued to rise despite the economic misfortune this country has suffered in the last five years.  My advice to anyone that is facing job obsolescence is to retrain yourself for an occupation that has more available jobs.

bluebarnstormer
bluebarnstormer

@j.walter.miller I didn't misunderstand. What you do is worth a couple of bucks a day in India. The free market is worldwide now and we are getting to a point where the only thing left will be service jobs in the US. But no one will be able to afford the services. 

If everyone just keeps looking the other way while hedge funds strip the economy of its middle class then we deserve what happens. We can't just keep cutting the wages of average Americans and pretending like everything will be fine. You may feel job outsourcing insulation now but what about 10 years from now if the current outsourcing trends continue. 

But before you worry about that you should worry about the current economy. Obviously the loss of 18,000 jobs affects the sales of software, less to the company and more to employees who have lost middle class purchasing power. As the middle class shrinks so does the marketplace for software. How much more would you make in your field if middle class jobs were rising in pay and number instead of continuing the 40 year decline?

j.walter.miller
j.walter.miller

@bluebarnstormer I think you misunderstood.  My income is in the top 16%% in this country. My income is in the top 3%% worldwide.  What could a union possibly do for me except drive away employers and keep shitty engineers in jobs when they should be fired?

 
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