Hostess Bankruptcy: Was CEO a Ding Dong?

2012 seems to have started out with many bankruptcies. First, we had Kodak and now Hostess Brands is filing Chapter 11 for the second time. Hostess Brands is responsible for making Wonder Bread, Twinkies, Ding Dongs and other assorted goodies. It seems surprising that a snack company is going out of business given the rising obesity problem America faces. However, in business if your costs are more than your revenues you are out of business. Hostess filed for bankruptcy in 2009 and still owes $860 million to creditors. In their most recent fiscal year the company lost $340 million despite selling $2.5 billion worth of goodies. Rising input costs like sugar and flour have also been blamed for the bankruptcy. Of course government quotas artificially sweeten the price of sugar for a handful of American farmers.

One of the major problems with Hostess seems to be the number of union contracts that they have. Around 80% of all Hostess employees are unionized which would inevitably bring problems if a company wants to restructure anything. The company has 372 separate union labor contracts. Most companies don’t have a union. Employees come and go as they please. I never understood the argument of unions. Essentially, unions are created to protect the unproductive. Why do employees need an organization to negotiate for them? If employees had marketable skills and were good at their job the employee would have the bargaining power not the employer. In union jobs only certain people are allowed to perform certain tasks. For instance, for instance union contracts at GM in the old days only allowed certain employees to change light bulbs. Anyone with a brain will realize how unproductive this is. In the case of Hostess Brands only certain trucks had to deliver bread and cake products. The labor contracts also present another problem of numerous pension obligations. Since there are so many union contracts there are also many different pension plans. Hostess has 40 pension plans they have to work with. Managing pension funds is expensive and has burdensome paperwork. Considering most companies just have one (their own) pension plan it would make sense to consolidate this.

Whether or not Hostess Brands emerges from bankruptcy is a question only time will answer. The company brands however might not disappear. Various companies could come in and look at buying individual brands that the company owns and try to integrate them into their snack portfolio mix. This of course would happen if Hostess was unable to restructure their obligations and debts in bankruptcy court. So the question remains was whoever running Hostess a ding dong?