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The Last Twinkie

November 17, 2012

Drama. There’s a rush on for “The Last Twinkie” which will forever be as fresh as they are today while investment bankers, hedge funds and trade union pension funds rush on and fight one another once again for the right to “save” their baker and maker, Hostess Brands Incorporated, from bankruptcy and insolvency for the third time in less than ten years.

DealBook, November 15, 2012 – “Emerging from bankruptcy protection in 2009 (post the bankruptcy in 2004) the new private equity backers loaded the company with debt, making it difficult to invest in new equipment. Earlier this year, Hostess had more than $860 million of debt ($1.4 billion as on December 10 this year and estimated assets of $982 million). The labor costs, too, proved insurmountable, a situation that has been complicated by years of deal-making. The bulk of the work force belongs to twelve unions, including the International Brotherhood of Teamsters and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (representing about 83% of the company’s 19,000 employees). The combination of debt and labor costs has hurt profits. The company posted revenue of $2.5 billion in the fiscal year 2011, the last available data. But it reported a net loss of $341 million.”

Of course we are concerned and disturbed by the massive loss of jobs and the loss of productivity of a great company, but how did it come about that its biggest unsecured creditor is the Bakery & Confectionary Union & Industry International Pension Fund to which it owes about $944 million? It was, in fact, labor that finally threw down the gauntlet and refused to take it any more, so to speak.

DealBook, November 15, 2012 – “Our members decided they were not going to take any more abuse from a company they have given so much to for so many years,” said Mr. Hurt (President of the bakers’ union). “They decided that they were not going to agree to another round of outrageous wage and benefit cuts and give up their pension only to see yet another management team fail and Wall Street vulture capitalists and ‘restructuring specialists’ walk away with untold millions of dollars.”

And so it ends for alleged hedge funds and “alternative investments” with accusations of abuse and opportunism, they say. But, in our view, there are no victims in this drama – all of the parties at one time or another got what they wanted whether it was an unending supply of cheap Twinkies, wages, salaries and benefits or “investment banking” and all of the parties have ended up as losers a decade or less thereafter.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of  investment lore. We have just one product

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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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