A year ago this week, Hostess filed for Chapter 11 bankruptcy, less than eight years after its previous incarnation, Interstate Baking, did the same.
About a month ago, Hostess shut down, and workers were blamed by executives – executives who broke promises, mismanaged the company, and enriched themselves, as too many private-equity outfits do. However – as the National Labor Relations Board underscored on Dec. 3 by finding Hostess guilty of violating federal law by failing to bargain in good faith – this winter’s strike by members of the Bakery, Confectionery, Tobacco Workers and Grain Millers international union (BCTGM) wasn’t the cause of Hostess’s closure, which St. Louis’ Mayor Francis Slay (right) said the corporation was planning anyway.
Hostess and its investment-firm owners demanded huge concessions, provoked the strike, gave workers an unacceptable ultimatum, manipulated press coverage to blame labor, and used bankruptcy laws to void agreements, close the company and liquidate assets.
The bakers union represented 7,500 Hostess workers; representing another 7,900 were the Teamsters, which earlier this year narrowly accepted a 32% wage cut and other givebacks. The bakers rejected a similar offer, considering pension concessions too much to take and voting 92-8% to strike.
The result in west-central Illinois was the loss of about 100 jobs at Hostess’ Butternut Bakery in Peoria, where millions of pounds of goods were baked each year, and the disappearance of familiar brands including Ding Dongs, Ho Ho’s, Twinkies, and Wonder bread.
Hostess operated about three dozen bakeries and more than 500 bakery outlet stores nationwide, and delivered goods to supermarkets, mass marketers, and convenience stores on 5,500 routes. The corporation reported revenues of $2.5 billion last year.
“While Hostess management wants to blame our members for the demise of the company, the truth is had it not been for the valiant efforts of our members over the last eight years, including accepting significant wage and benefit concessions after the first bankruptcy, this company would have gone out of business long ago,” said BCTGM president Frank Hurt.
Indeed, as reported by Dow Jones, Hostess’s unsecured creditors committee alleged that Hostess executives looted the company even as they demanded “shared sacrifice” by workers.
“This at a time when finances were tight and management nevertheless decided to give itself more bonuses and salary raises,” added Mary Sanchez in the Chicago Tribune.
The private-equity owners also had loaded down the company with debt, and Hostess stopped paying in to workers’ pension plan, Dow Jones reported.
The venture capitalists who took over the troubled company at its 2004 bankruptcy didn’t fulfill their promises. Despite a commitment from the company then that the resources derived from workers’ concessions would be invested back into the company, it didn’t happen. Instead, management failed to modernize its bakeries, invest in new technology, develop new products, create new advertising or improve its distribution system, said court papers, which reported that its owners burdened Hostess with $773 million in new debt – and then ran it up even higher.
Hostess management also failed to invest in equipment; neglected once-dominant brands; showed no capability for controlling or tracking inventory; and didn’t match competitors’ price adjustments when grain prices rose, financial experts said.
“You’ve seen ownership practices for any kind of large-scale manufacturing operations replaced by this short-term financial mentality, that’s come largely from Wall Street, and looking at companies less as enterprises than as bundles of assets that can be moved around a chessboard,” said Michael Hilliard, a University of Southern Maine economist. “They’re operating with the idea that you can always squeeze more – squeeze more out of operations, out of labor, out of distribution – just find any way to get more profit.”
Hostess had long claimed it was actively searching for new investors and buyers, but it had resisted its own creditors’ calls to launch a full-blown sale process before it dealt with its unions. On KMOX-AM radio in St. Louis, Mayor Slay said, “I was told months ago they were planning on closing the site in St. Louis. And there was no indication at that time it had anything to do with the strike the workers were waging.”
Meanwhile, the private-equity owners reportedly plan to sell Hostess’s iconic brands for up to $2.4 billion, the proceeds from which will go to investors, not workers. A “crowd-sourcing” idea to raise money for workers to buy Hostess (http://doughforhostess.com) is a long shot as corporate buyers bid. The world’s largest bread maker, Mexico’s Grupo Bimbo, is favored to prevail; it already makes and sells Hostess’ Wonder Bread in Mexico.
“Ask yourself this,” writes Dave Johnson of the Campaign for America’s Future, “– are the problems in our economy because working people get too much, or too little? Does it really make sense to blame the workers who already took pay and benefit cuts?”
[PICTURED: St. Louis Mayor Francis Slay, from the Labor Tribune.]
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