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TWINKIES AND DING DONGS – THEY’RE NOT GOING ANYWHERE

November 18, 2012

TWINKIES AND DING DONGS – THEY’RE NOT GOING ANYWHERE

I am probably one of few bloggers who pre-date Twinkies, and though two Twinkies in a cellophane wrapper for a nickel or a dime was a scandalously high price during the Depression, you had to pony up or go without. With no money, we usually went without. However, occasionally we had a nickel or a dime and took the plunge. It was a blissful ride into culinary nirvana, one we would savor for perhaps months – or until the next time (which would probably be months). We were, after all, living in poverty during the Great Depression. We were children of parents who had been evicted for failure to pay rent of $8 a month. We knew all about being poor and living with Third World realities. We did not live in Twinkie-World.

The instant I heard that Hostess was in bankruptcy and was going to throw in the towel because the labor unions would not accommodate its demands for lower wages etc., I smelled a rat (and a scapegoat). Then when I read further that it was a second Chapter 11 filing for Hostess, I knew I was on to something.

Labor unions had nothing to do with the failure of Hostess Brands to cut the marketing mustard. Management came to unions and essentially said take less money or we will close the business. It is clear to me and I would hope any bankruptcy judge that labor strife is a convenient excuse when the real problem is managerial. Management had no new ideas on how to compete in a tough market. Labor union members who bake Twinkies and drive delivery trucks have nothing to do at all with such managerial prerogatives. Those good people do not make marketing and internal finance decisions, and it is a cheap shot for management to pretend that they do. If Hostess goes under, it will be because of inept management – by management.

I as a lawyer have handled several bankruptcies, but no Chapter 11s, and none of the magnitude of the Hostess filing. However, in checking out its motions and supporting schedules, I noted with great interest one such overhanging liability in an enormous amount dubbed “reserve for workers compensation.” If Hostess is trying to sell the court and if its PR people are trying to orchestrate such a view for public consumption that this is a cost forced upon them by those greedy labor unions, then I have some bad news for them. Workers compensation liability is statutory; it is a state requirement; it is not a part of any labor-management agreement.

The truth is that labor costs (per their own verified schedules in support) are a minor portion of their liabilities and their public fulminations to the contrary are propaganda. How do you spell scapegoat?

I now understand upon further investigation that Hostess Brands is under the tutelage of vulture capitalists (on the order of Bain Capital), so now everything is falling in place. Vulture capitalists are only interested in the fees (exit and otherwise) that they can attract while running through Chapter 11 exercises. If, after having the court stiff labor and vendors on their respective contracts, you as a venture capitalist can make more money keeping the venture going, fine. If you can make more money in watching the venture go under and sell component pieces of it, fine. Whatever makes more money.

I further understand that there will be a hearing tomorrow in court on whether to hire FTI Consulting to do the financial work for Hostess (aka vulture capitalist prey). (Amazingly, Hostess has no Treasury, speaking of managerial incompetence.) The proposal (in part) in the motion to be heard tomorrow calls for an “interim treasurer @ an annual salary of $780,000, two of his deputies at $660,000 each, the “financial department” is to be compensated at the rate of $895 an hour, and finally, a “completion fee” to be paid to FTI at the end of the case. Additionally, petitioner is asking the court to approve a “debtor in possession” loan of 75 million dollars to provide additional cash to bankrupt during these proceedings.

If there was ever any doubt that Hostess would survive, the court’s approval of the petitioner’s motion tomorrow seals the answer. Nobody can sell that many Twinkies to pay such fees, especially when you consider that these are just new costs – the old ones (if they stay in full or partial operation) will be added to these. I smell self-enriching vulture capitalist treatment all over the place and precious little preoccupation with the lives of their 18,500 employees and their families or the survival of the Twinkie and Ding Dong historic labels.

SUMMARY: Hostess Management bludgeoned labor to take less money with lights out threats in Chapter 11 bankruptcy. Labor had already given in to earlier demands and refused this one. Hostess went back into Chapter 11 proceedings. Management has been involved in a PR campaign since, blaming labor for the loss of Twinkies and Ding Dongs. Labor had (and has) nothing to do with the presence or absence of Twinkies and Ding Dongs. Inept management is responsible; labor doesn’t make managerial decisions.

PREDICTION: If Hostess survives, which is doubtful, and as I wrote to a friend of mine in sorting out alternatives, “Maybe after the Chapter 11 proceedings come to an end they can form a new corporation, buy Hostess out of bankruptcy, reopen the plants and distribution systems with slave labor, and compete.”

Of course, the vulture capitalists may sell the bankrupt corporation’s assets out piece by piece (if that makes more money), but whether the bankrupt corporation is sold in one piece or piece by piece, the trademark names Twinkies and Ding Dongs will, in my opinion, survive. They are too valuable to be lost in a sea of managerial incompetence, and although I have no idea who will bake and distribute these classic goodies, the perhaps only good news in this dreary essay is that these delights aren’t going anywhere. GERALD  E

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