Economy & Budget

Death of a Hostess

Death of a Hostess

A sad follow-up to a story I wrote about last January: Hostess Brands is going out of business.  Goodbye, Twinkies.  Farewell, Wonder Bread.

This is a classic example of symbiotic organisms killing their Hostess.  From  Friday’s CNN report:

Hostess Brands — the maker of such iconic baked goods as Twinkies, Devil Dogs and Wonder Bread — announced Friday that it is asking a federal bankruptcy court for permission to close its operations, blaming a strike by bakers protesting a new contract imposed on them.

The closing will result in Hostess’ nearly 18,500 workers losing their jobs as the company shuts 33 bakeries and 565 distribution centers nationwide. The bakers’ union represents around 5,000.

Hostess will move to sell its assets to the highest bidder. That could mean new life for some of its most popular products, which could be scooped up at auction and attached to products from other companies.

“We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike,” said CEO Gregory Rayburn in a statement.

Back when I first wrote “Unions Ate Your Twinkie,” I got a surprising amount of email from angry union apologists insisting that Hostess would never actually go out of business.  They were just making idle threats to scare the righteous workers back into line.  You lose, union guys.

There were actually two unions involved here, the International Brotherhood of Teamsters and the Bakery, Confectionery, Tobacco Workers, and Grain Millers International.  The Teamsters narrowly voted to accept the proposal that would have kept Hostess alive, but the bakers were intransigent.  According to a September 17 CNN report, the bakers interpreted Hostess CEO Greg Rayburn’s reluctance to liquidate the company as a sign of weakness, and gambled that his going-out-of-business predictions were just an empty threat.  ”Rayburn says those workers were led to believe both that Hostess would make a secret better offer and that there was a ‘white knight’ ready to swoop in to buy the company.  Rayburn says neither is true,” the CNN article said.

For God’s sake, people, I know you just drank a lot of Kool-Aid about “recovery” to get Barack Obama re-elected, but seriously: in this economy, when a company says they might go out of business, believe them.

The deal that would have saved Hostess was pretty tough (on both the company, its financiers, and workers, although of course nobody mourns the cost to corporate entities.)  The union workers would have taken an 8 percent pay cut, given up some of their absurd work rules, paid more for their health insurance, and lost a big chunk of Hostess’ funding to their multi-employer pension plans.  Those are pension programs in which several different companies kick in to fund a collective plan for a union that provides labor to all of them.  They’re generally in quite a bit of trouble, as they are underfunded by about $326 billion.  They’ve also been making smaller companies toxic to potential investors and buyers, since buyers don’t want to find themselves saddled with a piece of an underfunded pension disaster they have limited ability to cope with.

In return for their concessions, the unions would have gotten two seats on the Hostess board of directors and 25 percent equity in the company.  Instead, they have zero jobs and 100 percent of nothing.  Several thousand more unemployed workers are about to be dumped into the room-temperature Obama economy.  Other entities will buy up the valuable Hostess brands, such as the Twinkie, and relaunch them someday, but for now we’ll have to make do without them.

No wonder unions would much rather deal with the one “company” they think can never “go out of business,” no matter what demands they make: the federal government.  They’re wrong about that, too.

Update: I’ve heard it said that the bakers union represented less than 5 percent of the total Hostess workforce.  One intransigent labor collective therefore killed the jobs of countless thousands they did not represent.  Total jobs lost: 18,500.

Union boosters will comfort themselves by saying it was really the Hostess executives who drove the company out of business.  Pointing out the objective reality that the bakers’ union made the decision that nailed the coffin shut does not issue a blanket pardon to management for decisions made over the course of decades.  The unions were making plenty of decisions during those decades, too.  Nothing about the prologue changes what actually happened today, or the fact that one participant in the demise of Hostess could have chosen differently, and kept the company alive.

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