Behind Hostess Brands' Fire Sale

Hostess is dead. Long live Hostess. A last minute mediation between bankrupt Hostess Brands and the second largest union at the company, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) failed to produce results, and liquidation resumed last Wednesday, with a number of potential buyers salivating over the company’s assets and iconic brands.

Hostess’ CEO Gregory Rayburn told presiding bankruptcy judge Robert Drain that he needed to lay off the vast majority — 15,000 — of the company’s 18,500 employees and begin the part and parcel sale of the company immediately for maximum return. Rayburn explicitly blamed a last-minute strike following the BCTGM’s refusal to make harsh concessions as responsible for the company’s demise. In fact, the company’s unions had made concessions totaling $110 million in the last Hostess bankruptcy, which began in 2004. This latest request was a race to the bottom — peeling back negotiated wages, benefits and pension obligations.

Rayburn’s words in court last week were tinged with irony:

“From this point forward, I need two things to happen,” Mr. Rayburn told the judge. “I need to maximize the value of the estate, and I need to do the best thing for the employees.”

The New York Times’ Steven Greenhouse provided a useful summary of the rancorous negotiations between the company and union, concluding with the comments of John W. Budd, a professor of industrial relations at the University of Minnesota:

“The company had plenty of time to figure out a new business model in terms of products, but it didn’t, so it was convenient to blame labor for the company’s failure. Hostess’ creditors weren’t willing to make any more concessions, so if they didn’t see a viable business model, that raises questions of why labor should be making more concessions.”

In fact, said Michael Hiltzik in an impassioned editorial for the Los Angeles Times, such a plan did exist, it just went ignored in favor of drawing more concessions from workers:

Hostess management hasn’t been able entirely to erase the paper trail pointing to its own derelictions. Consider a 163-page affidavit filed as part of the second bankruptcy petition.

[then-Chief Executive Brian] Driscoll outlined a “Turnaround Plan” to get the firm back on its feet. The steps included closing outmoded plants and improving the efficiency of those that remain; upgrading the company’s “aging vehicle fleet” and merging its distribution warehouses for efficiency; installing software at the warehouses to allow it to track inventory; and closing unprofitable retail stores. It also proposed to restore its advertising budget and establish an R&D program to develop new products to “maintain existing customers and attract new ones.”

None of these steps, Driscoll attested, required consultation with the unions. That raises the following question: You mean to tell me that as of January 2012, Hostess still hadn’t gotten around to any of this?

Workers are already paying with their jobs for the company’s inability to do business. Blaming them for Hostess’ demise is a convenient way for management to add insult to injury — while selling the company’s assets.

Matthew McDermott is a Unionosity editorial assistant and outreach coordinator. His post first appeared there and is republished with permission.