Business law
labaraii12
BUSI_2301_Policy3_Hostess3.docBusiness Regulations Policy Case #3
DIRECTIONS: Write a Business Law Issue paper by analyzing the attached articles. Your paper should be typed and incorporate accepted rules for correct grammar, syntax, spelling, capitalization, and punctuation must be observed. Papers must be the sole work of the student. If your project is more than 1 page long, please staple the pages together.
If you need assistance with your writing, you may refer to North Lake College’s Writing Center. Located in Room A332, the Writing Center is open 8:00 AM to 8:00 PM Monday through Thursday and 8:00 AM to 2:00 PM on Friday. Saturday hours are 9:00 AM to 1:00 PM. Students can also call 972-273-3089, or email [email protected]. Finally, another resource for students is to The Elements of Style, by Strunk & White.
This is not a book report, but rather a college level analysis of a business legal issue. Use outside sources for further research on the topic as needed to enhance your work, and cite them properly at the end of your paper.
DUE DATE: See your syllabus LEGAL THEORIES: Contracts, Bankruptcy & Right to Organize
POINTS: 40 Points TEXT CHAPTERS: 10, 13 & 17
1. Provide a background of what is happening in these articles.
2. What are the business issues found in the articles?
3. What administrative agencies are a part of this inquiry?
4. What industries are affected by this court/agency decision?
5. Is this a legal issue or policy at question here? (There is more than one – so discuss all the issues that you identify.)
6. Do you agree with the legal issue or policy at question here? Why? Why not?
7. What are the ramifications to businesses, the institutions, and you the consumer of this decision?
8. What political forces have come into play in this situation, and how has that affected the action taken by the governmental agency involved?
9. How would you approach this situation in designing a remedy for the persons affected?
GRADING RUBRIC:
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Category |
40 Points |
30 Points |
20 Points |
10 Points |
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General Content |
Answers clearly address the questions and offer evidence/ examples to legal conclusions. |
Questions are answered clearly but examples & supporting points are vague |
Questions are answered very briefly, but no support is given as proof. |
Questions are not answered or answers are incorrect. |
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Organization |
Answers are very organized. Ideas flow from one to the other, presented in essay fashion. |
Answers are organized but missing some parts of the essay. |
Answers are not organized. One topic does not flow into the next. |
The main question is not answered. |
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Spelling/Grammar/Punctuation |
Answers are free of spelling, grammar, and punctuation errors, and ideas are expressed clearly with crediting sources. |
A couple of errors may be present, but the answers still flow well and make sense. |
Some spelling and punctuation errors; answers are harder to follow. |
Many errors and answers are incomplete and/or unclear. |
The Twinkie Manifesto
By PAUL KRUGMAN
Published: November 18, 2012
http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html?_r=1&
The Twinkie, it turns out, was introduced way back in 1930. In our memories, however, the iconic snack will forever be identified with the 1950s, when Hostess popularized the brand by sponsoring “The Howdy Doody Show.” And the demise of Hostess has unleashed a wave of baby boomer nostalgia for a seemingly more innocent time.
Needless to say, it wasn’t really innocent. But the ’50s — the Twinkie Era — do offer lessons that remain relevant in the 21st century. Above all, the success of the postwar American economy demonstrates that, contrary to today’s conservative orthodoxy, you can have prosperity without demeaning workers and coddling the rich.
Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”
Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.
Nor were high taxes the only burden wealthy businessmen had to bear. They also faced a labor force with a degree of bargaining power hard to imagine today. In 1955 roughly a third of American workers were union members. In the biggest companies, management and labor bargained as equals, so much so that it was common to talk about corporations serving an array of “stakeholders” as opposed to merely serving stockholders.
Squeezed between high taxes and empowered workers, executives were relatively impoverished by the standards of either earlier or later generations. In 1955 Fortune magazine published an essay, “ How top executives live, ” which emphasized how modest their lifestyles had become compared with days of yore. The vast mansions, armies of servants, and huge yachts of the 1920s were no more; by 1955 the typical executive, Fortune claimed, lived in a smallish suburban house, relied on part-time help and skippered his own relatively small boat.
The data confirm Fortune’s impressions. Between the 1920s and the 1950s real incomes for the richest Americans fell sharply, not just compared with the middle class but in absolute terms. According to estimates by the economists Thomas Piketty and Emmanuel Saez, in 1955 the real incomes of the top 0.01 percent of Americans were less than half what they had been in the late 1920s, and their share of total income was down by three-quarters.
Today, of course, the mansions, armies of servants and yachts are back, bigger than ever — and any hint of policies that might crimp plutocrats’ style is met with cries of “socialism.” Indeed, the whole Romney campaign was based on the premise that President Obama’s threat to modestly raise taxes on top incomes, plus his temerity in suggesting that some bankers had behaved badly, were crippling the economy. Surely, then, the far less plutocrat-friendly environment of the 1950s must have been an economic disaster, right?
Actually, some people thought so at the time. Paul Ryan and many other modern conservatives are devotees of Ayn Rand. Well, the collapsing, moocher-infested nation she portrayed in “Atlas Shrugged,” published in 1957, was basically Dwight Eisenhower’s America.
Strange to say, however, the oppressed executives Fortune portrayed in 1955 didn’t go Galt and deprive the nation of their talents. On the contrary, if Fortune is to be believed, they were working harder than ever. And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973.
Which brings us back to the nostalgia thing.
There are, let’s face it, some people in our political life who pine for the days when minorities and women knew their place, gays stayed firmly in the closet and congressmen asked, “Are you now or have you ever been?” The rest of us, however, are very glad those days are gone. We are, morally, a much better nation than we were. Oh, and the food has improved a lot, too.
Along the way, however, we’ve forgotten something important — namely, that economic justice and economic growth aren’t incompatible. America in the 1950s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered. And we can do that again.
A version of this op-ed appeared in print on November 19, 2012, on page A21 of the New York edition with the headline: The Twinkie Manifesto.
Twinkies Likely to Survive Hostess Shutdown
12:25 PM, Nov 19, 2012
DETROIT, Mich. -- The tasty cream-filled golden spongecakes known as Twinkies are likely to survive, even though their maker will be sold in bankruptcy court.
Hostess Brands, baker of Wonder Bread as well as Twinkies, Ding Dongs and Ho Ho's, will be in a New York bankruptcy courtroom Monday to start the process of selling itself.
The company, weighed down by debt, management turmoil, rising labor costs and the changing tastes of America, decided on Friday that it no longer could make it through a conventional Chapter 11 bankruptcy restructuring. Instead, it's asking the court for permission to sell assets and go out of business.
But with high brand recognition and $2.5 billion in revenue per year, other companies are interested in bidding for at least pieces of Hostess. Twinkies alone have brought in $68 million in revenue so far this year, which would look good to another snack-maker.
"There's a huge amount of goodwill with the commercial brand name," said John Pottow, a University of Michigan Law School professor who specializes in bankruptcy. "It's quite conceivable that they can sell the name and recipe for Twinkies to a company that wants to make them."
Hostess has said it has received inquiries about buying parts of the company. But spokesman Lance Ignon would not comment on analysts' reports that Thomasville, Ga.-based Flowers Foods and private equity food investment firm Metropoulos & Co. are likely suitors. Metropoulos owns Pabst Brewing, while Flowers Foods makes Nature's Own bread, Tastykake treats and other baked goods. Messages were left for spokesmen for both companies.
"We think there's a lot of value in the brands, and we'll certainly be trying to maximize value, both of the brands and the physical assets," Ignon said Sunday. He said it's possible some of Hostess' bakeries will never return to operation because the industry has too much bakery capacity.
Little will be decided at Monday afternoon's hearing before Bankruptcy Judge Robert Drain, Pottow said. The judge eventually will appoint a company that specializes in liquidation to sell the assets, and the sale probably will take six months to a year to complete, Pottow said.
Irving, Texas-based Hostess filed for Chapter 11 bankruptcy protection in January for the second time in less than a decade. Its predecessor company, Interstate Bakeries, sought bankruptcy protection in 2004 and changed its name to Hostess after emerging in 2009.
The company said it was saddled with costs related to its unionized workforce. The company had been contributing $100 million a year in pension costs for workers; the new contract offer would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits.
Management missteps were another problem. Hostess came under fire this spring after it was revealed that nearly a dozen executives received pay hikes of up to 80 percent last year even as the company was struggling.
Then last week thousands of members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union went on strike after rejecting the company's latest contract offer. The bakers union represents about 30 percent of the company's workforce.
By that time, the company had reached a contract agreement with its largest union, the International Brotherhood of Teamsters, which this week urged the bakery union to hold a secret ballot on whether to continue striking. Although many bakery workers decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels.
The company filed a motion to liquidate Friday. The shuttering means the loss of about 18,500 jobs [including about 200 jobs at its Cotton Brothers/Holsum Bakery in Alexandria, La.]. Hostess said employees at its 33 factories were sent home and operations suspended. Its roughly 500 bakery outlet stores will stay open for several days to sell remaining products.
News of the decision caused a run on Hostess snacks at many stores around the country, and the snacks started appearing on the Internet at inflated prices.
Requiem for the Twinkie?
Hostess Brands goes Ding Dong dead, leaps into the Dumpster
November 19, 2012 Copyright © 2012, Chicago Tribune
Hostess Brands trucks sit at the company's plant in Hodgkins on Friday.
Friday's news that the company making Twinkies, Ding Dongs and Wonder Bread is preparing to liquidate touched off a blame game among Americans shocked that these iconic products are in danger of going away forever.
The move follows a strike that began Nov. 9 by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. It refused to swallow additional wage and benefit concessions to keep the bankrupt Hostess Brands afloat. Its 5,000 members were nearly unanimous in rejecting the company's final contract offer.
As a result, the company said, most of the 18,500 Hostess employees will lose their jobs. That includes members of the largest union, the International Brotherhood of Teamsters, which did agree to the company's concession demands.
The bakery union's self-defeating refusal to accept financial reality is only part of the story however. For Hostess, the strike was the final blow of many. High commodity costs hurt the company. Not only did it pay a fortune for food ingredients, but also for the energy to run its facilities and fuel its delivery trucks.
The recession hurt too. Hostess was unprepared to meet difficult business conditions that prevailed in 2009, when it emerged from a previous bankruptcy reorganization in which it obtained big concessions from its workforce. It had been, in fact, a poorly managed company for a long time. A string of short-sighted executives were quick to take money out of the business and slow to make the capital investments it needed to stay competitive.
Perhaps most damaging, the company failed to innovate in response to changing consumer tastes. Hostess didn't have to make Ho Ho's out of tofu to stay relevant. Food companies such as Kraft, Sara Lee and Nabisco have long understood their success depends on sophisticated market research, product development and creative marketing. It doesn't come cheap.
They also must update their product lines constantly to keep their customers — many of them increasingly health-conscious — satisfied. Consider Kraft's Jell-O brand. Consumers still can buy a box of powdered gelatin dessert that hasn't changed much in 100 years. They also can buy pudding, no-bake desserts, ready-to-eat, fat-free and sugar-free versions of the product under the same Jell-O brand.
The 82-year-old Hostess was previously known as Interstate Bakeries Corp. and based in Kansas City, Mo., for many decades. Arguably, its best-known products peaked during the 1970s.
Other companies may yet do better with at least some of the Hostess brands. Flowers Foods Inc., Bimbo Bakeries USA, a division of Mexico-based Grupo Bimbo, and Pepperidge Farm, a division of Campbell Soup Co., are among prospective buyers as the company is liquidated, analysts say.
Even if those companies buy all the brands, however, many redundant factories and distribution networks will close. Most of the Hostess jobs still will be lost.
There also is no guarantee that any particular brand will survive. Yes, even golden, cream-filled Twinkies snack cakes could go extinct.
As one analyst told the Reuters news service of the Twinkies brand, "It's iconic, but in the same way that the great Studebakers are iconic."
Reports circulated Friday of Twinkies being auctioned for as much as $10 apiece online. Not bad for an obsolete hunk of popular culture. It is sobering to note that today's Twinkies have a much longer shelf life than the company that made them.
Hostess Closing: Twinkies Are Gone, and It's All Our Fault
Posted: 11/16/2012 3:54 pm
http://www.huffingtonpost.com/foodbeast/hostess-closing-twinkies-_b_2146413.html?view=print&comm_ref=false
So Hostess Brands, the makers of your cherished Twinkies, Ho Hos and Sno Balls, finally went under today. Sadface. But while nearly every other news source is posting up quick DIY Twinkie recipes to help you prep for the impending Twink-pocalypse, we've gotta be real for a second. None of you liked Twinkies all that much anyway.
Sure, there's a Twinkie Facebook page, and yeah, there was Woody Harrelson's character in Zombieland, but when was the last time you -- yeah, you -- went out and picked up a pack yourself?
Now before we get too crazy, let me just say this -- I don't blame you. Really, I don't. Since before the turn of the century, we've all had the Atkins and South Beaches and Shaun T's breathing down our backs, judging us as we peruse the snack aisles of our local 7-11s. And at 300 calories a pack and $1.50ish for two, Twinkies didn't do much to help themselves survive, either. But the fact nevertheless is this: we did this to ourselves. We, as a collective Super Size Me, P90X, burst-housing-bubble society, effectively killed the Twinkie. Thanks a lot Jared.
As it stands, there is still a chance that someone -- anyone -- could buy out all of Hostess's properties and rebuild the packaged pastry giant from scratch , but unless they make a conscious effort to health-ify their products (and really, who would want a "healthy" Twinkie?), chances are it wouldn't help much.
The way I see it though, all this fuss is just a case of not knowing what you've got 'til it's gone. Kinda the same way everyone started wearing Michael Jackson shirts a few summers back. But let's not beat a dead horse, and let's certainly not pay $5000 for a single freaking Twinkie. After all, Twinkies had a good run, but this death has been long-a-coming, even before their Chapter 11 bankruptcy, even before the worker's strike. So go ahead, make your DIY vanilla crème sponge cakes. Hoard all the grocery store packs you can find. Just don't pretend you didn't see this coming.
Twinkies Maker Hostess Going Out of Business, CEO Blames Union Strike
“It’s over. This is it,” Gregory Rayburn tells "Today."
Sunday, Nov 18, 2012 | Updated 4:21 PM CST
Hostess, the makers of Twinkies, Ding Dongs and Wonder Bread, is going out of business after striking workers failed to heed a Thursday deadline to return to work, the company said.
“We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike,” Hostess CEO Gregory F. Rayburn said in announcing that the firm had filed a motion with the U.S. Bankruptcy Court to shutter its business. “Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders.”
Hostess Brands Inc. had earlier warned employees that it would file to unwind its business and sell off assets if plant operations didn't return to normal levels by 5 p.m. Thursday. In announcing its decision, Hostess said its wind down would mean the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores in the United States.
Hostess suspended bakery operations at all its factories and said its stores will remain open for several days to sell already-baked products. In the Chicago area, there were reports of Hostess products flying off the shelves.
Rayburn told The Associated Press that there was no buyer waiting in the wings to rescue the company. But without giving details, he said that there has been interest in some of its 30 brands. Experts agreed that it was likely the biggest brands would survive.
The Irving, Texas-based company had already reached a contract agreement with its largest union, the International Brotherhood of Teamsters. But thousands of members in its second-biggest union went on strike late last week after rejecting in September a contract offer that cut wages and benefits. Officials for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union say the company stopped contributing to workers' pensions last year.
NBC's Savannah Guthrie read a statement on "Today" from the bakers' union that said: “Despite Greg Rayburn’s insulting and disingenuous statements of the last several months, the truth is that Hostess workers and the union have absolutely no responsibility for the failure of this company. That responsibility rests squarely on the shoulders of the company’s decision makers.”
Rayburn responded that he had been “pretty straightforward in all the town hall meetings I’ve done at our plants to say that in this situation I think there is blame that goes around for everyone.”
He denied that the decision to shut down could be a last ditch negotiation tactic to get the union back to the table.
“It’s over,” he said. “This is it.”
Although many workers decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels; three plants were closed earlier this week. Rayburn told the AP Hostess was already operating on thin margins and that the strike was a final blow.
"The strike impacted us in terms of cash flow. The plants were operating well below 50 percent capacity and customers were not getting products," Rayburn said.
The privately held company filed for Chapter 11 protection in January, its second trip through bankruptcy court in less than a decade. The company cited increasing pension and medical costs for employees as one of the drivers behind its latest filing. Hostess had argued that workers must make concessions for it to exit bankruptcy and improve its financial position.
The company, founded in 1930, was fighting battles beyond labor costs, however. Competition is increasing in the snack space and Americans are increasingly conscious about healthy eating. Hostess also makes Dolly Madison, Drake's and Nature's Pride snacks.
If the motion is granted, Hostess would begin closing operations as early as Tuesday.
"Most employees who lose their jobs should be eligible for government-provided unemployment benefits," Hostess said.
Copyright Associated Press / NBC 5 Dallas-Fort Worth
Union Claims Hostess Executives Received Raises In Advance Of Bankruptcy (CORRECTION)
Posted: 11/16/2012 5:54 pm EST Updated: 11/17/2012 10:01 am EST
http://www.huffingtonpost.com/2012/11/16/gregory-rayburn-raise_n_2147043.html?view=print&comm_ref=false
CORRECTION: An earlier version of as well as an earlier headline of this post incorrectly stated that Greg Rayburn received a 300 percent raise as CEO of Hostess as the company approached bankruptcy. Rayburn wasn't CEO of Hostess until after the company filed for bankruptcy. The post also incorrectly stated that he was paid a salary of up to $2,550,000 per year. His salary when he joined the company was $100,000 per month, according to a company spokesman.
Hostess could have ensured the Twinkie's survival simply by paying the executives less, one of the unions organizing company workers alleges.
Of course, to hear the company tell it, the maker of Wonder Bread and Twinkies simply can’t survive ongoing worker strikes at its plants. The company claims its hand was forced when it only came to an agreement with one of its two unions after several months in negotiations.
The union says there’s another way the Twinkie-maker could have avoided liquidating and laying off all of its 18,500 workers: by paying the executives less money.
Hostess’ creditors accused the company in April of manipulating executive salaries with the aim of getting around bankruptcy compensation rules, the Wall Street Journal reported at the time. In response, Rayburn announced he would cut his pay and that of other executives to $1 until Dec. 31 or whenever Hostess came out of bankruptcy.
That was after Hostess had already awarded the company's top four executives raises of between 75 and 80 percent, even though the company had already hired restructuring lawyers, according to the WSJ.
The situation isn't specific to Hostess. Over the last 30 years, CEO pay grew 127 times faster than worker pay, according to a July report.
Hostess to Pay $1.75 Million in Executive Bonuses After Blaming Unions For Bankruptcy
By Travis Waldron on Nov 19, 2012 at 1:55 pm
http://thinkprogress.org/economy/2012/11/19/1215811/hostess-executive-bonuses/?mobile=nc
Hostess Brands, the maker of sweet snacks like Twinkies that filed for Chapter 11 bankruptcy protection last week, will ask a bankruptcy judge today to approve a plan that will allow it to
pay $1.75 million in bonuses
to 19 of its executives. Hostess’ decision to file for bankruptcy came amid disputes with its union workers, who threatened a strike that Hostess said imperiled the company’s finances. The unions are now protesting Hostess’ request for the bonuses, though they are unlikely to prevail, CNN Money reports:
Hostess Brands will ask a bankruptcy judge on Monday for approval to shut down the company and pay $1.75 million in executive bonuses. Unions representing workers at the maker of Twinkies, Wonder Bread and Drake’s snacks are arguing against the bonuses. [...]
Under the plan, bonuses ranging from $7,400 to $130,500 will be paid to 19 executives. The company argues the bonuses are below market rates for such payments.
Even as it blamed unions for the bankruptcy and the 18,500 job losses that will ensue, Hostess already gave its executives pay raises earlier this year. The salary of the company’s chief executive tripled from $750,000 to roughly $2.5 million, and at least nine other executives received pay raises ranging from $90,000 to $400,000. Those raises came just months after Hostess originally filed for bankruptcy earlier this year.
Hostess is hardly the only company that has compensated its executives during bankruptcy or times of financial instability. Failed financial firm MF Global gave CEO Jon Corzine an $8 million pay package after it filed for bankruptcy, and Citigroup CEO Vikram Pandit received a $6.7 million pay package when he resigned, despite Citi’s 88 percent profit loss during his final quarter. And Hostess isn’t alone in giving executives massive raises while asking for concessions from union workers either: construction giant Caterpillar rewarded its CEO with a 60 percent pay raise, paying him $17 million, even as it forced a pay and pension freeze on its union workforce.
Hostess, Bakers Union Agree to Mediation
Judge pushes parties toward mediation to save more than 18,000 jobs
Updated November 19, 2012, 7:44 p.m. ET
http://online.wsj.com/article/SB10001424127887324307204578129282170898870.html
By JACQUELINE PALANK, RACHEL FEINTZEIG and MIKE SPECTOR
Seeking to save more than 18,000 jobs, a bankruptcy judge surprised Hostess Brands Inc. and its warring union Monday by delaying the company's bid to close its 85-year-old bakery business and sell off its factories, brands and other assets.
Hostess Brands and its striking union agreed to mediation Monday to avoid the immediate liquidation of the baker of Ho Hos, Twinkies and Wonder Bread.
Instead, Judge Robert Drain asked both sides to join him Tuesday for a mediation session where he will try to broker a new contract. If Tuesday's long-shot session fails, then the company will be able to return to court Wednesday to try to move ahead with its plans to close down.
Hostess had asked the U.S. bankruptcy judge for permission to liquidate, arguing that the bakers union's more than week-long strike had left it unable to produce Twinkies, Ho-Hos, Wonder Bread and other longtime supermarket staples. Hostess said it didn't have the financial wherewithal to continue operating amid the work stoppage.
"My desire to do this is prompted primarily by the potential loss of over 18,000 jobs," the judge said during a hearing in federal bankruptcy court in White Plains, N.Y. He also cited his "belief that there is a possibility to resolve this matter notwithstanding the losses that [Hostess has incurred] over the last week or so and the difficulty of reorganizing this company."
The collapse and probable liquidation of Twinkie-maker Hostess Brands is a sobering reality check for unions and workers looking to shift the post-recession balance of power with private employers
Hostess and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union agreed to the confidential mediation proceedings. If they don't make progress, a hearing on Hostess's liquidation request will resume Wednesday, the judge said. Meanwhile, the company's plants remain closed and potential suitors are circling.
Hostess Chief Executive Gregory Rayburn said the judge's call for mediation is a "forceful" message to the company and the union to try to work out their issues. "We'll take all the help we can get," he said.
Bakers union attorney Jeffrey R. Freund of Bredhoff & Kaiser said after the hearing that the union was "respectful" of the court's request for mediation.
The standoff between Hostess and the bakers union dates back to the company's proposal for wage and pension cuts earlier this year. Hostess's other big union, the Teamsters, agreed to the new labor deal, but the bakers balked.
Eventually, Hostess sought permission under the Bankruptcy Code to impose labor terms on the bakers. The bakers union didn't participate in court proceedings related to Hostess's request, and Judge Drain gave the company the permission it sought in October.
The imposed five-year labor contract included an 8% cut to wages in the first year and pension-plan modifications. On Nov. 9, the bakers walked off the job.
Judge Drain, who was a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP before his 2002 appointment to the bench, said in court Monday he didn't understand why the union didn't fight the labor concessions in court.
The sign at the Hostess Brands Dolly Madison plant in Columbus, Ind., on Nov. 16.
"The bakers union did not object to the relief that was sought. I want to repeat that," he said, calling its decision to remain silent when Hostess was on the verge of imposing labor cost cuts "somewhat unusual, to say the least, and perhaps illogical."
Mr. Freund said the union has been "crystal clear" about what it believes needs to be done to make Hostess viable. "We laid that out," he said, "again and again and again and again."
Mediations have become more prevalent in bankruptcies as caseloads have increased and litigation has proliferated in courts, according to Donald Workman, a bankruptcy lawyer at Baker & Hostetler LLP who isn't involved in the Hostess case. Sometimes judges will assign mediators to tackle a number of lawsuits brought within a bankruptcy proceeding instead of hearing them all in an effort to keep cases moving.
Hostess's situation, though, is extraordinary, with the fate of the company hanging in the balance. When it filed for bankruptcy in January, it reported $1.3 billion in debt and $981.6 million in assets as of Dec. 10.
Heather Lennox, a Jones Day lawyer representing Hostess, told Judge Drain Monday that the strike hurt the company's finances beyond repair.
"At this point, your honor, our customers know we're going out of business. It would be very hard for us to recover from this damage, your honor, even if there were to be an agreement in the near term," she said.
Already, potential bidders are circling Hostess, hoping to get iconic brands or other assets on the cheap. Flowers Foods Inc. of Thomasville, Ga., whose own brands include Nature's Own bread, ButterKrust bread and Tastykake snack cakes, said Monday it has renegotiated lending terms to allow it to tap additional cash. Analysts see that as a clear sign it is gearing up to buy Hostess assets.
Private-equity firm Sun Capital, meanwhile, is interested in bidding on Hostess's entire business, said a person close to the firm. The Boca Raton, Fla., buyout shop, which owns the Friendly's restaurant chain and specializes in company turnarounds, would like to try to negotiate a deal with Hostess's unions, the person said. Sun's interest was earlier reported by Fortune.
For mediation to succeed, Judge Drain would have to get the bakers to agree to go back to work, and get Hostess to tweak its labor-contract proposal in a way the union can accept, Mr. Workman said. "He's going to strong-arm both sides to get to some place where they can be comfortable," he added.
Immediate Release: November 16, 2012
Contact: Frank Hurt, BCTGM International President
(301) 933-8600 http://www.bctgm.org/PDFs/HostessPressRelease11-16-12.pdf
HOSTESS DEMISE A DECADE IN THE MAKING
The following statement was issued by BCTBM International Union President Frank Hurt in response to the announcement by Hostess Brands that it would begin liquidation.
“Hostess’s announcement that it is liquidating the company is a deep disappointment for all of our Hostess members. While Hostess management wants to blame our members for the demise of the company, the truth is that had it not been for the valiant efforts of our members over the last eight years, including accepting significant wage and benefit concessions after the first bankruptcy, this company would have gone out of business long ago.
“Hostess failed because its six management teams over the last eight years were unable to make it a profitable, successful business enterprise. Despite a commitment from the company after the first bankruptcy that the resources derived from the workers’ concessions would be plowed back into the company, this never materialized.
Management refused to invest in modernizing its bakeries or devote necessary resources to advertising and marketing, product development and new technology. Business plan after business plan failed, leaving the company ever deeper in debt.
“When a highly-respected financial consultant, hired by Hostess, determined earlier this year that the company’s business plan to exit bankruptcy was guaranteed to fail because it left the company with unsustainable debt levels, our members knew that the massive wage and benefit concessions the company was demanding would go straight to Wall Street investors and not back into the company.
“Our members were aware that while the company was descending into bankruptcy and demanding deep concessions, the top ten executives of the company were rewarding themselves with lavish compensation increases, with the then CEO receiving a 300 percent increase.
“Our members decided they were not going to take any more abuse from a company they have given so much to for so many years. They decided that they were not going to agree to another round of outrageous wage and benefit cuts and give up their pension only to see yet another management team fail and Wall Street vulture capitalists and “restructuring specialists” walk away with untold millions of dollars.
“Throughout this long and difficult process, BCTGM members showed tremendous courage, solidarity and devotion to principle. They were well aware of the potential consequences of their actions but stood strong for dignity, justice and respect.”
The BCTGM represents more than 80,000 workers in the baking, food processing, grain milling and tobacco industries in the United States and Canada.
Judge OKs Bonuses for Execs in Hostess Liquidation
By James O'Toole @CNNMoney November 29, 2012: 6:10 PM ET
http://money.cnn.com/2012/11/29/news/companies/hostess-bonuses/index.html?iid=Popular
WHITE PLAINS, N.Y. (CNNMoney) -- A federal bankruptcy judge finalized the liquidation of Hostess Brands on Thursday and approved a bonus plan for senior executives involved in the wind-down of the company.
Union representatives had opposed the plan, which offers $1.75 million in bonuses ranging from $7,400 to $130,500 for 19 executives, provided they meet certain benchmarks in managing the liquidation. But Judge Robert Drain said the plan was appropriate, citing testimony that it had been independently vetted and was below market value for firms in similar circumstances.
He said the liquidation would call for work "significantly beyond the type of jobs that [the executives] were doing at the start of this case," and called the incentive plan "an exercise of proper business judgment."
He noted that the over 3,000 rank-and-file employees assisting in the liquidation were also getting paid beyond their regular salaries, and that new Hostess CEO Greg Rayburn had ruled out a bonus for himself.
Drain declined to appoint an independent trustee to oversee the liquidation, saying it was not necessary but could be later if circumstances change.
On Nov. 21, Drain gave preliminary approval for the company to shut down after 82 years in business. This followed a failed attempt to mediate a dispute between the company and its bakery workers' union over wage and benefit cuts imposed through bankruptcy court.
The union said its membership was overwhelmingly opposed to the concessions agreed to by other Hostess employees, including the majority of the 6,700 members of the Teamsters' union. The bakers walked off the job on Nov. 9, and Hostess filed for liquidation a week later.
The bakers' union has repeatedly said that mismanagement and the company's debt were responsible for its failure, not the strike. This is Hostess' second trip to bankruptcy court since 2004; it emerged from restructuring in 2009 before filing for bankruptcy again in January.
Paul Carroll, 60, a former fleet mechanic for Hostess from Fort Thomas, Ky., drove 12 hours to be heard at the hearing. He said every move the company's previous management made "brought us down further," calling for Hostess to make good on its millions in outstanding pension obligations to employees.
The bakers' union has also criticized Hostess' previous management for demanding benefit cuts while allegedly providing raises for the CEO and other top executives. Drain said this incident "will definitely be looked at" as the case progresses.
Going forward, Joshua Scherer, an investment banker from Perella Weinberg who is advising Hostess, told the court that there had been huge interest in the company's brands and assets from potential buyers.
It's possible some buyers would rehire ex-Hostess staffers and reopen the company's plants, though others could simply produce former Hostess products with their own resources.
In the meantime, Carroll is looking for work.
"It's really sad that a lot of people in these bakeries aren't going to find good jobs from here on out," he said outside the court.
Judge Approves Sale of Rights to Hostess Brands, Including Twinkies
By MICHAEL J. DE LA MERCED March 19, 2013, 11:52 am
A federal bankruptcy judge on Tuesday approved the sales of several major Hostess Brands product lines, including Twinkies, fetching about $800 million for the various pieces of the bankrupt baking company and clearing the way for it to be eventually wound down.
Chief among the deals cleared was the $410 million sale of Hostess’s snack cake brands, including Twinkies and Ho Hos, to Apollo Global Management and Metropoulos & Company. That transaction could lead to the return of the cream-filled treats to store shelves as soon as this summer.
Also approved were the sales of most of Hostess’s bread brands, including Wonder Bread, to Flowers Foods for about $360 million. Grupo Bimbo of Mexico won control of the Beefsteak bread line for $31.9 million after beating Flowers in an auction.
No rival bidders emerged for the snack cakes or the other bread products.
Judge Robert D. Drain of the Federal Bankruptcy Court for the Southern District of New York gave swift approval of the sales, before moving onto more prosaic matters like the review of fee payments to Hostess advisers.
Hostess is also set to sell its Drakes line of snack cakes to McKee Foods, which bid $27.5 million.
What it Took to Save the Twinkie
By Drew Harwell July 5, 2016 at 5:03 PM
In 2012, the end appeared nigh for the humble Twinkie, the yellow sponge cake and American icon: A trend toward healthy eating and a bitter union brawl had forced its baker into bankruptcy.
Now, Hostess Brands is back with a vengeance, with new plans to become a publicly listed company and return to a market that had once left it for dead. The deal, announced Tuesday, would give the maker of Twinkies, CupCakes and Ding Dongs a market value of roughly $2.3 billion.
Twinkies in display at the Hostess Brands’ bakery in Denver in 2013. Almost four years after seeking bankruptcy protection, the maker of Twinkies and Ding Dongs is set to again take the stage as a publicly traded company. (AP Photo/Brennan Linsley, File)
The sweets giant has in recent years staged a remarkable revival, spearheaded by a billionaire turnaround artist and promoted in company marketing as “the sweetest comeback in the history of ever.”
But its private-equity-fueled resurgence has also revealed some of the grim costs paid to keep the failing business alive. The company has shed thousands of workers, closed most of its decades-old bakeries and changed the face of one of the country’s most timeless junk-food brands.
“We like to think of ourselves as a billion-dollar startup,” Hostess chief executive Bill Toler said Tuesday on an investor conference call.
Hostess’ owners — Metropoulos & Co., led by billionaire food-industry investor C. Dean Metropoulos, and Apollo Global Management, a private-equity firm — said they had reached a deal designed to get the company listed on the Nasdaq stock exchange by this fall. That public debut would allow the company to raise money from shareholders to pay down debt, invest in upgrades or fund potential takeovers of outside companies.
The owners will sell most of Hostess Brands in exchange for about $725 million from a team of investors led by the Gores Group, the Los Angeles private-equity firm that will take the company public. Apollo and Metroupoulos, which bought the company out of bankruptcy in 2013 for $410 million, will retain a 42 percent stake. Metropoulos, the company’s executive chairman, and William Toler, its chief executive, will stay on in their current roles.
“Hostess presents a unique opportunity to invest in an iconic brand with strong fundamentals that is poised for continued growth,” Gores Group chairman and chief executive Alec Gores said in a statement. “We look forward to working with the team at Hostess as we collaborate to further capitalize on these attractive growth prospects.”
Hostess was founded in 1919 with the introduction of its swirly-topped CupCake, but its first true hit was the Twinkie, first baked in 1930. Hearty and sweet, the two-for-a-nickel Twinkies proved immensely popular among the penny-pinching Americans of the Great Depression. Its original banana-cream filling was swapped for vanilla during the banana rations of World War II.
The Twinkie’s fame grew in the ’50s, due in part to its major sponsorship of one of the first children’s TV shows, “Howdy Doody.” (A 1958 segment proclaimed them “one of the most delicious desserts we’ve ever had in Doodyville.”) Their chemical sturdiness — a common myth says they won’t spoil for years — helped secure their place in lunchboxes and bomb shelters. In 1999, President Bill Clinton selected the iconic American treat as one of the keepsakes in the nation’s millennium time capsule.
In the years that followed, corporate watchers of Hostess worried that the Twinkie was threatened with extinction. A national trend toward more wholesome snacks tightened the belt on the snack cakes’ sales, and weighty pension costs and tense labor negotiations made them costlier to make. The company filed for bankruptcy in 2004, emerged from its restructuring in 2009 and filed again in 2012, selling off assets and calling for an end to snack-cake production.
When Apollo and Metropoulos bought the company, they restarted the bakery conveyor belts and used the failure as a marketing tool: Advertising on billboards and in social media, where the uproar over the cakes’ demise was most vocal, proclaimed, “An icon returns.”
Under the new owners, Hostess regained market share by advertising or relaunching much of its overflowing pantry of dessert brands, including Ho Hos, Fruit Pies, Ding Dongs and Donettes. It expanded further into grab-and-go points, including dollar stores and vending machines, that its previous owners had largely ignored. And it tweaked the recipes, investing millions in chemical research to expand its snack-cake shelf life to an average of 65 days.
The once-bankrupt company is again booming, pulling in $650 million in revenue in the 12 months ending May 31, filings show. But along the way, management has carved deeply into its workforce.
Where the company just five years ago had 8,000 employees — 75 percent of whom were represented by unions — the company now says in filings that it has a “streamlined employee base” of roughly 1,170 workers. That workforce is the shadow of a once-vast empire, which shortly before its troubles totaled 22,000 workers across more than 40 bakeries.
The company has invested $130 million to upgrade production lines and industrial ovens in its three core bakeries in Indianapolis; Emporia, Kan.; and Columbus, Ga. Its other bakeries have disappeared: The company in 2014 announced it would shutter its long-running bakery in the Chicago suburb of Schiller Park, where the Twinkie was first baked. About 400 jobs were affected.
Based in Kansas City, Mo., the company has closed all 600 or so of its Hostess outlet thrift stores and now delivers directly to warehouses, helping avoid the inefficiencies of regional bakeries, small distribution lines and direct-to-store delivery.
The cuts have not limited Hostess’ ambition — or its ability to capture public attention. This year, it will sell frozen “Deep Fried Twinkies” exclusively at Walmart, as well as limited-edition “Key Lime Slime” Twinkies, a tie-in with the upcoming “Ghostbusters” film.
“This new phase in Hostess’ evolution,” Metropoulos said in a statement, would lead to “significant reach and potential long into the future. We are very excited to continue to build this wonderful company and its iconic brands.”
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