The Last Twinkie

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

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