As I mentioned in my
previous post Hostess is now going through the bankruptcy process. Recently
Hostess is in talks with the Teamsters Union. During the bankruptcy process
companies have to create a plan and present it to creditors and get it approved
by the courts in order to proceed. One part of the plan calls for Hostess to
raise at least $400 million from current lenders and possibly new investors.
Around 83% of Hostess’s employees are unionized. In fact the
company has close to 400 different union contracts. Hostess sounds more like a
bureaucracy then a business. The company has 40 different pension plans when
most companies only have one. Hostess pays about $100 million every year to
their multiple pension plans. Speaking of the pensions Hostess has a pension
fund that is underfunded by $2 billion. The company also owes pension creditors
$950 million. This
site has a create run-down of who all Hostess owes. I have seen stories of
people complaining about how the executive salaries increased. However when I
look at the largest costs I see “Union health and welfare/pension” at over $989
million. The second largest creditor is flour which is a mere $8.53 million. So
clearly the labor costs are what have put Hostess in such bad shape and not
executive compensation. People forget to that a CEO never sets their pay. Board
of directors and the compensation committee of a company decide how much a CEO
will earn and usually most executives are paid in the form of stock options not
cash. Therefore, the executives total income is mostly tied to how well the
company does. The executives at Hostess didn’t want the company to go bankrupt
and really lost out of a lot of money since the company is now in bankruptcy
It is tragic that Hostess is now in the bankruptcy process.
If there is one root cause of their bankruptcy it would have to be the high
cost of labor unions. As I have mentioned before labor unions protect the
unproductive. If I were Hostess I would do everything I could to bust up the
unions. If that didn’t work I might consider firing everyone and then having a
rehiring process with the condition that unions couldn’t be formed. Hostess
lost $340 million in their last fiscal year. People have a desire for sugary
snacks and goodies. According to data from the CDC around 36% of Americans are
obese. Hostess has good products that people enjoy. If you don’t believe me
just look at the skyrocketing
rate in diabetes.
In 1980 around 153 million people had diabetes. By 2010 that same figure increased 56% to 347 million people. Hostess may get bought out by a private equity company who can attempt to turn around the company. Although, I think these private equity companies would become hesitant with the existing union problems.
In 1980 around 153 million people had diabetes. By 2010 that same figure increased 56% to 347 million people. Hostess may get bought out by a private equity company who can attempt to turn around the company. Although, I think these private equity companies would become hesitant with the existing union problems.
Pete you work one day for this outfit you will see most of the problems!Hostess also make more healthful products not just twinkies.We gave to much already and sorry to say we aint giving back anymore.Maybe you could tell us about the rigged bankruptcy laws of this country.
ReplyDeleteBig Daddy,
DeleteUnfortunately, I don’t work in that industry. I did however work at a Krispy Kreme in high school and realized that the bakery business was not my calling. No doubt that Hostess makes more than Twinkies and Ding Dongs however these are the products they are most associated with. I am not a bankruptcy lawyer however I do know that companies can go bankrupt and still come back. The bankruptcy process allows companies to work with creditors to work out a plan to put the company back on track.
The reason they owe the union so much is that they BORROWED from the union last summer to "prevent bankruptcy", and when they stopped paying into the pension the union (who had a contract) sued them....union won and is now owed not only loan principal and pension contibutions but a civil penalty from the counrt for breach of contract....they were supposed to pay up on the pension side on Jan 31, 2012...Instead they filed another Ch 11 BK. AFTER giving exhorbitant raises to their top execs. They only offered to give them back after the media found out and the UNION threatened to strike over it. Hostess has the same union as 2 of their biggest competitors. The same pension obligations, delvery system, and basic product line. Their competition makes profits (even though their pay structures and insurance coverages are better). The difference MANAGEMENT....this company is plagued with mediocre and BAD management. They have squandered investments (including $520/yr for every employee since they exited BK last time!)
ReplyDeleteMary,
DeleteWhat evidence do you have that the company borrowed from the union? Part of the reason why the pension costs are so expensive is because Hostess has close to 40 pension plans. Most companies only have one why the need for so many? Union rules also artificially increase costs for instance only requiring two trucks instead of one. These rules increase costs. Also are the executives the only ones highly compensated? What about union leaders?
By definition if there two largest competitors had the same pension obligations they would be in the same position. Also how do you know how the competitors work unless you have worked there? If there truly is bad management then the board will fire them. I would argue though that increased pension costs have plagued the company. Executive pay is a small fraction of company costs while labor represents 70% of all costs.
You see here that pete has no clue about this business or he would know 95 percent of trucks have dual loads on them. He seem to lean like a true right winger always blame that bad boy union and its workers.I forgot more than this youngun knows and believe me the guys got alot to learn.This by far is the most mismanaged outfit i ever worked and thats 28 years.Like i said work here one day andsee the unaccounted cake or bread is in the millons of dollars each day.Thats goofups pete that they mis shipped.I could go on and on all the wasted dollars and plain stupid decisions but i would fill up the whole page.As far as these executive bonuses for what are the getting rewarded for putting the company back into bankruptcy.Thats 30% TO MUCH IN MY VIEW. As a outsider pete is clueless but he will learn in time.
ReplyDeleteBig Daddy,
ReplyDeleteMy question would be why do union rules prohibit trucks from carrying certain products? This really doesn’t make much sense and I think you would agree with me there. If you read my blog you will find out that I am actually not a right wing conservative. If the firm is run so poorly why not leave? Employees have options just like employers. The board of directors decides compensation not the executives. So if anyone should be blamed it should be the board of directors and not the executives. However, like I said previously I believe the high union costs are what led to the bankruptcy and not the executive salaries. Executive salaries are usually a small percentage of actual profit. If you have any evidence of that the salaries were a high percentage of the profits I would be happy to look at it.