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About Northwest labor press. (Portland , Ore.) 1987-current | View Entire Issue (Dec. 7, 2012)
The day the Twinkie died Hostess Brands goes out blaming unions for its demise By DON McINTOSH Associate Editor Hostess Brands CEO Greg Rayburn may have sold the business press on the claim that unions are to blame for his company’s end, but nothing could be further from the truth, say leaders of 83,000-member Bakery Confectionery, Tobacco Workers and Grain Millers In- ternational Union (BCTGM). “Blaming BCTGM for the liquida- tion is no more credible than blaming an isolated gust of wind for blowing over a tree, when it was the tree’s shal- low, rotted root structure that was actu- ally responsible,” the union said in a Nov. 19 filing in U.S. Bankruptcy Court. Hostess, which filed bankruptcy Jan. 11 for the second time in a decade, announced Nov. 16 that it is no longer seeking to restructure but instead in- tends to liquidate, selling off its assets, including the right to make Wonder Bread, Twinkies, and 28 other well- known brands. But the company was run into the ground by management, not by its unions, says BCTGM Presi- dent Frank Hurt. In the ’80s and ’90s, Hostess bought up numerous competitors, was itself sold four times, and ended up heavily in debt, but instead of paying down that debt, the company spent its resources buying back stock to drive its share price up. For decades, man- agement stuck with its old product line as consumer tastes changed, and failed to invest in new equipment. The company added ingredi- ents to lengthen its products shelf-life — so that it could close plants and cut delivery routes. But quality suffered and sales dropped, and gas prices rose, diminishing the savings on products that now had to be trucked farther. In 2002, $575 million in debt, the company declared bankruptcy. In bankruptcy, the company negoti- ated two rounds of wage and benefit concessions from its unions — princi- pally BCTGM and the Teamsters — totaling $107 million a year. The unions also agreed to layoffs and plant closures that brought the workforce down to about 19,000 from more than 30,000. The company emerged from bank- ruptcy in 2009 with $774 million in debt, under the ownership of a private equity company and two hedge funds. But Hurt says managers failed to use savings from the union concessions to turn the company around. Hostess in- troduced no new products, continued to skimp on reinvestment, and cut back on advertising and marketing. By mid-2011, the company was again having difficulty making pay- ments on its debt, and in August 2011, it stopped making its required $4 mil- lion a month in pension contributions in violation of its union contracts. Then late last year, in what BCTGM later called evidence of bad faith, top managers had the company convert their performance bonuses into salary guarantees — at the same time that Hostess attorneys were preparing a sec- ond bankruptcy filing. For Brian Driscoll, who’d only been Hostess CEO since June 2010, it meant a raise from $750,000 to $2.55 million. On Jan. 11, Hostess filed for Chap- ter 11 bankruptcy protection, which al- lows a company to stay in business while it re-organizes and renegotiates terms with lenders, vendors, and em- ployees. And under Section 1113 of Chapter 11, companies can reject or modify union contracts if unions turn down a company’s final offer and the judge determines it’s “necessary” for the reorganization to succeed. In its bankruptcy filing, Hostess re- ported 2011 sales of $2.5 billion and losses of $341 million, and it listed $1.3 billion in debt versus $981.6 million in assets. Without a doubt, Hostess was drowning in debt, but instead of pro- posing that creditors take a loss, Host- ess told the court it would not be able to emerge as a viable competitor unless it was relieved of significant financial commitments and work rules imposed by its collective bargaining agreements. Yet most of Hostess’ competitors are unionized and financially healthy, including Mexican multinational Bimbo, which entered the U.S. bread market in the mid-’90s. Today Bimbo is the biggest, and is overwhelmingly union in its baking operations, and about half unionized in its distribution. BCTGM leaders say Hostess ap- peared to have no reorganization plan in its bankruptcy filing beyond trying to squeeze more concessions from workers. Meanwhile, Driscoll himself re- signed March 9, and named as replace- ment Rayburn, who’d been hired Feb. 22 as an expert on corporate liquida- tions. Rayburn is founder and owner of Kobi Partners, a restructuring advisory firm. Hostess is paying him $125,000 a month. After months of legal motions, Hostess presented to workers its de- mand for concessions. Teamsters ap- proved Hostess-proposed concessions by a narrow 53 percent vote, but BCTGM members rejected them by an overwhelming 92 percent. The offer BCTGM members re- jected would have terminated their pen- sion plan, doubled their health insur- ance premiums while worsening plan benefits, eliminated the eight-hour day, and reduced their hourly pay by 27 per- cent over five years, starting with an 8 percent cut in the first year. Under Hostess’ proposal, a worker who began the contract at $16.12 an hour would earn $11.26 five years later. And on top of all that, workers were being asked to agree to the closure of 10 to 12 addi- tional plants, without being told which ones would be closed. In a Sept. 17 press statement after the vote, BCTGM President Hurt called it “an outrageously unfair pro- posal from a company that has de- stroyed the trust of its workers through years of mismanagement, greed and unfulfilled promises.” With its bakers refusing to agree to those terms, Hostess asked U.S. Bank- ruptcy Court Judge Robert Drain for permission to impose them anyway. It’s becoming increasingly common for bankruptcy judges to rip up labor con- tracts that were negotiated over decades. Hostess had other contracts, for example with Cargill to purchase flour, sweeteners and wheat gluten. (Turn to Page 10) (International Standard Serial Number 0894-444X) Established in 1900 at Portland, Oregon as a voice of the labor movement. 4275 NE Halsey St., P.O. Box 13150, Portland, Ore. 97213 Telephone: (503) 288-3311 Editor: Michael Gutwig Staff: Don McIntosh, Cheri Rice Published on a semi-monthly basis on the first and third Fridays of each month by the Oregon Labor Press Publishing Co. Inc., a non- profit corporation owned by 20 unions and councils including the Oregon AFL-CIO. Serving more than 120 union organizations in Ore- gon and SW Washington. Subscriptions $13.75 per year for union members. Group rates available to trade union organizations. PERIODICALS POSTAGE PAID AT PORTLAND, OREGON. 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