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Hostess to go under
- Thread starter ScottySkis
- Start date
severine
New member
It's unfortunate so many will lose their jobs. Growing up, my dad worked for Nissen first, then Entenmann's for the last 25+ years. He had a lot of buddies working for Wonder and Drakes over the years--and we often had it in the house, thanks to bartering the stale. I won't miss the product itself--I can make far better quality at home--but I hate to see so many get screwed while the higher-ups kept bumping their salaries. Blech.
riverc0il
New member
Drake's Cake rack at the local convenience store was cleaned out. LOL. In other news, don't write off the company quite yet. Seems like the Bakers Union wants their jobs enough to want to deal. Guess they thought Hostess was just playing chicken?
severine
New member
It's not just a matter of "playing chicken." Yes, a job is better than none, but at what price? Concession after concession while the fat cats get fatter? Not cool.
riverc0il
New member
I think there certainly needs to be a conversation about what is going on at the Board of Directors level who are approving the fat cat pay checks. I certainly don't understand it, how failing companies approve massive pay increases and bonuses for top level execs while a company is struggling.
The executive culture in this country is certainly a small part of the problem. I see it in my own company... reducing positions, increasing workload for existing positions due to cut positions, capping max pay scales, reducing base pay levels for new associates, eliminating holiday bonus checks, etc. all while top execs don't take the same cuts. Trust me, I see it.
But on the flip side, most union workers are extremely well compensated for what they do. Obviously they aren't making mega bucks but I think juxtaposing union workers against fat cats isn't presenting the whole picture. Would be nice if the execs took some pay cut with the front line workers. I agree it doesn't make sense one group takes a cut while the other gets a raise. But I also don't think stone walling a company on the brink of closing its doors is a very good decision for the workers. I understand why the two sides "negotiate" the way they do... but I think it leaves something to be desired and seems too adversarial.
The executive culture in this country is certainly a small part of the problem. I see it in my own company... reducing positions, increasing workload for existing positions due to cut positions, capping max pay scales, reducing base pay levels for new associates, eliminating holiday bonus checks, etc. all while top execs don't take the same cuts. Trust me, I see it.
But on the flip side, most union workers are extremely well compensated for what they do. Obviously they aren't making mega bucks but I think juxtaposing union workers against fat cats isn't presenting the whole picture. Would be nice if the execs took some pay cut with the front line workers. I agree it doesn't make sense one group takes a cut while the other gets a raise. But I also don't think stone walling a company on the brink of closing its doors is a very good decision for the workers. I understand why the two sides "negotiate" the way they do... but I think it leaves something to be desired and seems too adversarial.
The answer you will get from the top brass is that they "need" to pay that kind of salary to their top execs to attract the talent required to be successful in those positions.
severine
New member
And they've proven themselves to be so successful...
Unions get a bad rap, but not every union worker is an overpaid lazy slob. I don't know how it works exactly for the bakers--and I realize they were a big part of the negotiations--but the route salesmen are exactly that--salesmen. Pay is based on their ability to actually sell the product. They don't just show up and collect. In my own profession (municipal employee), I've seen concession after concession while the higher up, non-contract employees continue to receive raises and increased benefits. One memorable example of someone who gets it, however, is the mayor where I live, who did not take a raise for 3 years because he believed that if he expected everyone else to make sacrifices, he should, too. Granted, he didn't give back any of his pay, but what he volunteered is almost unheard of.
Corporate culture is built on the shoulders of the workers who give and give so they can keep receiving. I don't care what they think they're doing with this "talent"--without those on the bottom, the wheels just don't turn.
drjeff
Well-known member
Bigger picture question here with the Bosses vs. Unions issue.
Who "owns" the company? The boss and/or board of directors who under most circumstances have a contractual fiduciary obligation to answer to either the investors who took the risk and put up the capital to allow the company to operate in the 1st place and/or the shareholders who have a similar roll? Or the workers, who have signed a contract agreeing to such and such terms (pay per timeframe, benefits, job duties, etc)??
Most bosses completely realize that to build a company, you need a group of talented workers who agree with the vision and plans that the leaders of the company convey to them. What often happens to attract such a "team" is that they need to be compensated fairly, both monetarily and psychologically. The other factor is that we live in a society today where the "norms" of yesterday aren't the same today, and the leaders, more often it seems than the workers, see this. There aren't too many areas of modern life today that technology hasn't impacted and often made it easier to do more, quicker, with less. There are often in most areas of business a greater amount of competition than there used to be. If a business can't "evolve" to the changes that they likely face (and often those changes end up being can you produce a product of as good, if not better quality, for less) than they'll got out of business more than likely.
I've been to many leadership seminars where the topic of wages comes up. And there's plenty of discrepency about what is the best model. Performance based vs. time based raises?? Just because someone may have worked for a company for more years doesn't always mean that they're proportionately going to be a more productive employee and as such warrant a raise simply because the calender now shows another year. At the same point, the stability of an employee knowing that after such and such a date there will be such and such a raise, reguardless of the performance of both the employee and company is attractive to an employee. Longterm though what is happening seems to be the "zero risk" on the part of the employee reguardless of the company's finacial health is proving to have issues.
Inspite of what many may think, most CEO's and upper management just don't sit back and collect a big paycheck for little work. There's some major descisions that are made, and the ramifications of them on people are often very clear to those making them
Who "owns" the company? The boss and/or board of directors who under most circumstances have a contractual fiduciary obligation to answer to either the investors who took the risk and put up the capital to allow the company to operate in the 1st place and/or the shareholders who have a similar roll? Or the workers, who have signed a contract agreeing to such and such terms (pay per timeframe, benefits, job duties, etc)??
Most bosses completely realize that to build a company, you need a group of talented workers who agree with the vision and plans that the leaders of the company convey to them. What often happens to attract such a "team" is that they need to be compensated fairly, both monetarily and psychologically. The other factor is that we live in a society today where the "norms" of yesterday aren't the same today, and the leaders, more often it seems than the workers, see this. There aren't too many areas of modern life today that technology hasn't impacted and often made it easier to do more, quicker, with less. There are often in most areas of business a greater amount of competition than there used to be. If a business can't "evolve" to the changes that they likely face (and often those changes end up being can you produce a product of as good, if not better quality, for less) than they'll got out of business more than likely.
I've been to many leadership seminars where the topic of wages comes up. And there's plenty of discrepency about what is the best model. Performance based vs. time based raises?? Just because someone may have worked for a company for more years doesn't always mean that they're proportionately going to be a more productive employee and as such warrant a raise simply because the calender now shows another year. At the same point, the stability of an employee knowing that after such and such a date there will be such and such a raise, reguardless of the performance of both the employee and company is attractive to an employee. Longterm though what is happening seems to be the "zero risk" on the part of the employee reguardless of the company's finacial health is proving to have issues.
Inspite of what many may think, most CEO's and upper management just don't sit back and collect a big paycheck for little work. There's some major descisions that are made, and the ramifications of them on people are often very clear to those making them
Geoff
Well-known member
This happens all the time with struggling companies. Senior people in any company are paid a base pay plus a variable part that is tied partly to how they perform and partly to how the company performs. What happens is it becomes clear that the company is in the shitter and the senior team is going to see zero for the variable part of their compensation. Most of the senior team immediately start looking for their next job. As people abandon the sinking ship, the company has no choice but to shift variable compensation over to base pay for a chunk of the team to prevent them all from quitting.
This actually happened to me last July 1. The company changed how the variable part of my compensation works and I ended up with what looked like a $50K pay cut. After a bunch of back & forth, I had $35K of that shifted over to base pay. I got a face-saving phantom promotion and a $5K "raise" applied to my variable compensation. It's still likely to be a ~$10K pay cut from where I was before but it's not enough that I'm going to quit over it. I'm the only person in the company who put his foot down about it. Since July 1, a half-dozen key people have quit in a company of 50. It's not like most people can't just walk across the street and get a job at their old pay rate (or better) and not have to deal with the B.S. of a sinking company.
ctenidae
Active member
I believe a good chunk of the package Hostess is offerig is equity to the Unions, who will then, in fact, become very large owners of the company, with teh ability to vote on the Board of Director's slate, and thereby control management. The airlines did it, GM did it, it's pretty common. Outsize bonuses and salary packages could just be management seeing the writing on the wall and getting theirs while they could (not necessarily a good thing...)
I agree, most management is aligned with the employees and other stakeholders- sort of an everyone in it together mentality. However, it is fairly easy for management to succumb to the tyrany of the immediate, aka the stock price, and that skews things a bit, a problem which can get worse as time goes on, particularly if performance is slipping. Stakeholders can also forget how they fit into the equation. Whether it's WalMart abusing their position as major or sole customer, or Unions forgetting that in order for a company to survive and grow it needs to turn a profit. Any of those three, and particularly a comination of any two, can cause massive problems for a company- looks lik Hstess is getting hit with both management failings and Union forgetfulness.
I agree, most management is aligned with the employees and other stakeholders- sort of an everyone in it together mentality. However, it is fairly easy for management to succumb to the tyrany of the immediate, aka the stock price, and that skews things a bit, a problem which can get worse as time goes on, particularly if performance is slipping. Stakeholders can also forget how they fit into the equation. Whether it's WalMart abusing their position as major or sole customer, or Unions forgetting that in order for a company to survive and grow it needs to turn a profit. Any of those three, and particularly a comination of any two, can cause massive problems for a company- looks lik Hstess is getting hit with both management failings and Union forgetfulness.
hammer
Active member
Maybe the whole team does need to quit in that case...OK I'm being a bit facetious, but until management makes a conscious and public effort to take its lumps when companies go down I think there will continue to be an "us vs. them" attitude amongst the worker bees.
That said unions also need to stop shooting themselves in the foot as well.
dmc
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Wallstreet vultures making themselves rich on the backs of the middle class.... again...
severine
New member
Wall Street Journal today said Hostess wanted the bakers union to accept an 8% pay cut in the first year, plus continued pay cuts in following years. I know pension was being cut, too. I can totally understand why the union would have fought that.
That said, looks like mediation failed and they'll be liquidating assets shortly. Time to start making them at home. Less chemicals in the homemade versions, at least.
legalskier
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"A 'bust out' is a common tactic in the organized crime world, wherein a business' assets and lines of credit are exploited and exhausted to the point of bankruptcy."
Except in this case, it wasn't illegal. Which, to me at least, is a mystery.
dmc
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Right... Legal organized crime by the wealthy... I'm personally sick of it...
Geoff
Well-known member
In this case, Hostess just did a Chapter 11 four years ago. This isn't the management team that put this company on the ropes being squeezed both on the finance side with a lot of debt at high interest rates and unfavorable labor contracts. Gregory Rayburn, the CEO, had only been there since last February. He had 30 days as Chief Restructuring Officer before replacing the previous CEO. Before that, he was a high end management consultant for FTI. The company paid him $100K per month as Chief Restructuring Officer and bumped him up to $120k per month when he became CEO. That isn't out of line for that kind of talent for a $2.5 billion in sales company. The 300% executive raise was a total lie fabricated by the union. You'll notice that the retractions in the press are either buried in fine print or simply never happened.
The people making the money from this deal are the private equity people who put the money in four years ago at the Chapter 11. That money is always senior debt and pays big interest. When Hostess liquidates, they'll get their money back plus a big chunk of interest. I'm not sure how you can fault them. Without that kind of deal 4 years ago, Hostess would have failed then.
ScottySkis
Well-known member
ctenidae
Active member
You're actually wrong on a few points, there, Geoff.
Ripplewood is the PE shop that acquired Hostess out of bankruptcy, and they put in equity, not senior debt. The lenders that helped finance the buyout are looking like they're going to get wiped out, too. At the time of the acquisition, Tim Collins, who heads Ripplewood, was very vocal about his overall plan to work with Unions to help turn around iconic US brands, and he hoped Hostess would be sort of the flagship company for the strategy. He got lambasted for not pushing for enough concession at the beginning, and they're getting wiped out for not being able to get concessions now. Some of the concessions he tried to get at the beginning, but couldn't, by the way, were flexible work rules that would allow people to do more than one job (a strategy employed by Wilbur Ross in the steel industry, only Wilbur said "Either you let operators do maintenance, or you're all fired"). Dick Gephardt was brought in as a consultant to work with the Unions, too.
The money that private equity shops put in is never senior debt- that's why it's called private equity. Debt investments are usually in the form of mezzanine debt, which would convert to equity in a bankruptcy, but very few of the mezz shops look for that kind of strategy- they'd rather loan money to a comapny that can pay it back and succeed than "loan to own" and have to turn around a failed company (that said, there are some guys who do that, too). In a standard LBO (leveraged buyout) there is, obviously, debt involved (hence the leverage), which is usually senior debt. In a liquidation, they may have first dibs on cash from the asset sale, but it's very rarely enough to satisfy the principle, much less pay "big interest." By the way, interest rates are still set by the overall market- if you can get cheaper debt somewhere, you do.
Finally, while no one should cry for most private equity guys, the ultimate benificiaries of private equity investments are, in fact, your kid's teachers, your garbageman, police and firefighters, and other public employees. It's their pension money that is invested in private equity. CalPERS is the single largest US PE investor. They're not "fat cats." It's true that the private equity firms get paid a big chunk of profits, but the vast majority (industry standard is 80%) of profit goes drectly to the LP investors (CalPERS, etc). And remember, the investment still has to make money for the PE firm to make any money. I concede that management fees are a big source of income, but it's not as egregious in general as it's made out to be (a few huge shops as notable possible exceptions).
The private equity industry has done a terrible job of explaining itself, or letting people know what they really do. It's not all rape and pillage- if that's your MO, it becomes very difficult to convince management teams to work with you, and you're stuck with hostile takeovers of already failing companies. While good for making movies, it's not a very good long term strategy. Wall Street is, generally rightfully so, villified for slash and burn, quick profits without regard for the future (or even the present at times). Private equity makes money over the long term, 4-7 year holds for companies, and create value by making companies bigger and better. At least, that's how you do it if you want to be around for more than a couple of years.
Yes, it's my industry, so obviously I have a nicre view of it. I also have an inside view of it, and have been on both the LP and GP side. Just because it's where I work doesn't mean I'm wrong.
Ripplewood is the PE shop that acquired Hostess out of bankruptcy, and they put in equity, not senior debt. The lenders that helped finance the buyout are looking like they're going to get wiped out, too. At the time of the acquisition, Tim Collins, who heads Ripplewood, was very vocal about his overall plan to work with Unions to help turn around iconic US brands, and he hoped Hostess would be sort of the flagship company for the strategy. He got lambasted for not pushing for enough concession at the beginning, and they're getting wiped out for not being able to get concessions now. Some of the concessions he tried to get at the beginning, but couldn't, by the way, were flexible work rules that would allow people to do more than one job (a strategy employed by Wilbur Ross in the steel industry, only Wilbur said "Either you let operators do maintenance, or you're all fired"). Dick Gephardt was brought in as a consultant to work with the Unions, too.
The money that private equity shops put in is never senior debt- that's why it's called private equity. Debt investments are usually in the form of mezzanine debt, which would convert to equity in a bankruptcy, but very few of the mezz shops look for that kind of strategy- they'd rather loan money to a comapny that can pay it back and succeed than "loan to own" and have to turn around a failed company (that said, there are some guys who do that, too). In a standard LBO (leveraged buyout) there is, obviously, debt involved (hence the leverage), which is usually senior debt. In a liquidation, they may have first dibs on cash from the asset sale, but it's very rarely enough to satisfy the principle, much less pay "big interest." By the way, interest rates are still set by the overall market- if you can get cheaper debt somewhere, you do.
Finally, while no one should cry for most private equity guys, the ultimate benificiaries of private equity investments are, in fact, your kid's teachers, your garbageman, police and firefighters, and other public employees. It's their pension money that is invested in private equity. CalPERS is the single largest US PE investor. They're not "fat cats." It's true that the private equity firms get paid a big chunk of profits, but the vast majority (industry standard is 80%) of profit goes drectly to the LP investors (CalPERS, etc). And remember, the investment still has to make money for the PE firm to make any money. I concede that management fees are a big source of income, but it's not as egregious in general as it's made out to be (a few huge shops as notable possible exceptions).
The private equity industry has done a terrible job of explaining itself, or letting people know what they really do. It's not all rape and pillage- if that's your MO, it becomes very difficult to convince management teams to work with you, and you're stuck with hostile takeovers of already failing companies. While good for making movies, it's not a very good long term strategy. Wall Street is, generally rightfully so, villified for slash and burn, quick profits without regard for the future (or even the present at times). Private equity makes money over the long term, 4-7 year holds for companies, and create value by making companies bigger and better. At least, that's how you do it if you want to be around for more than a couple of years.
Yes, it's my industry, so obviously I have a nicre view of it. I also have an inside view of it, and have been on both the LP and GP side. Just because it's where I work doesn't mean I'm wrong.
billski
Active member
It's a lot more than Twinkies going down
- Baker's Inn
- Beefsteak
- Blue Ribbon
- Bread du Jour
- Butternut Breads
- Colombo[SUP][35][/SUP]
- Cotton's
- Di Carlo
- Dolly Madison
- Drake's
- Dutch Hearth
- Eddy's
- Good Hearth
- Holsom
- Home Pride
- Hostess
- J.J. Nissen
- Merita
- Millbrook
- Nature's Pride
- Parisian
- Standish Farms
- Sweetheart Bakery
- Toscana[SUP][35][/SUP]
- Wonder Bread
The top brass are an easy target these days. I read an interesting blurb about the demands the unions had. When Hostess bought out some of the bakeries, they weren't careful about negotiating union rules. Some of the bakeries had really oddball rules, like only certain drivers could deliver cakes...but not bread. When you mix up a lot of different rules, spread accross multiple business units, things get out of hand fast.
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