Thursday, November 22, 2012

Hostess Mess: What can we learn ?

There was lots of news this week about Hostess Bakeries.  Hostess makes Wonder bread and Hostess Twinkies along with other bakery items. Hostess employed approximately 18,000 workers mostly bakery and route delivery(salesmen) workers. Sales have been declining for many years. The company went bankrupt in 2004 and emerged from bankruptcy in 2009 during which it's workers took pay cuts.  It is current owned by a private equity firm called Ripplewood Partners.

The company said it would close operations without further concessions for the workforce. As of November 21st, 2012, the company said it would sell it's brands and stop operations.

Here is the story from the St. Louis Post-Dispatch on bad management workers relations.
Here is the best story I have found on all of the details around Interstate Bakeries /  Hostess from the DailyNewsFinder.

Here is how we see the issue.  OK, this is a fantastic, teachable moment for the US in 2012.  But not about union givebacks or job losses.  Instead, it's about straight up bad management and how little power workers have in a tight economy.  It is also about how non-transparent financial reporting by private equity firms is compared to public firms The workers may have had an inkling, but could not accurately judge if the company was in real trouble or management was "lying again".

So, to the Evil Black Economist Blog, it like a simple, "bad" management bankruptcy over a eight year period. The problems were obscured by limited private equity reporting. We will have to wait for all the facts, but it looks like Hostess was not a going concern they way it was structured with huge amounts of debt. And both management and the union were using the company for excessive benefits.  No amount of "good" management would have saved the company. It should have been  liquidated for it's brands and factories years ago. If, I was the owner, I would have been talking to Bimbo for years.

Here are some facts I am looking for in the public bankruptcy filing.
1) Were earnings before interest and taxes positive? growing?
2) Was hostess adding new products? Customers? Increasing prices? or was the company shrinking?
3) What did the cost side look like?  Were commodity prices or wages causing problem? Were management and labor costs similar to the rest of the industry or they overpaid?
4) Why did private equity change leadership so often? (may not be available).

I don't see a lot to support for the political arguments others are reading into the matter.  It is a simple, and sad, bankruptcy where a lot of people get hurt. I challenge everyone to follow-up on the story and really read the chapter 11 filings when they come out.

And now for some personal opinion.

I believe, companies, especially private equity firms, need to be more transparent with their workers (open book accounting) about how the company is doing. So I am calling for regulations to make PE legal entities provide better reporting to their workers and the public.

Second,  he workers need to have some equity in the company.

Third, government institutions worked pretty well.  Bankruptcy court did it's job, the Pension Benefits Guarantee Corporation will bail out the unfunded pension liabilities and state unemployment will handle the workers however everyone comes out a loser.

No comments:

Blog Archive