Hostess workers strike may kill company

[Foolmewunz]

19 executives dividing $1.8 million over a year hardly sounds like "looting". Plus which, note my bolding. These are incentives; if the goals are not met, the money is not paid.

Well, that's going to depend on where you sit, isn't it? Let's say you're one of the creditors and the company has simply announced that it cannot afford to pay you (or any of their bills) the current payment due of 1.1 million dollars. Do you not wonder how they found 1.8 million to give to these executives yet just stiffed you for the 1.1 million payment?

And yes, I know that it's within the law, and I know that the judge has commented that this is normal, or actually a little lower than the scale he's seen in similar dissolution actions. I'm just wondering how everyone here favoring these remuneration packages would view it if it was their money being defaulted on.

 

[Foolmewunz]

This is a pretty good overview of who owns Hostess right now and how they came to own their stake: http://management.fortune.cnn.com/tag/ripplewood-holdings/ Ripplewood Holdings is a private equity firm that has the largest equity share of the company right now. This is what the article has to say about their situation:



How Ripplewood came to be involved was interesting:


So all this alleged plundering of the company has been going on by a company run by a Democrat that contracts for guidance from a company owned by Dick Gephart, in the past a major Democratic Party political figure.

And how have these plunderers of Hostess gone about it? Well Ripplewood put up $130 million dollars to get a majority share of control of the company which at this point seems to have been completely wiped out. The lenders wrote down $225 million dollars in debt and they put up another $360 million dollars in cash. All to end up with this situation:

Uh, Dave.... A couple of points:

That information has been available since I posted the link to the old Fortune article several pages ago.

I also haven't seen a lot of people arguing that this is Evil Republicans and that Obama would've done something. Obviously, he hasn't. This is in the Economics sub-forum and is not a discussion of politics.

And, by the way, don't assume Ripplewood's going to get burned. As I've said a few times, let's wait and see what the assets sell for. Hostess Brands (the big stuff like Wonderbread and Twinkies) has sales of over 3 billion a year. Even if that's down from what they needed to make it work at HB, that's still a lot of product sales. The products may not have been profitable coming out of bakeries of a company that has across-the-board downward motion of its sales and market shares, but bakeries and bakery product companies producing a mix of products may be able to use their own production and distribution efficiency to make a nice profit on the sideline of producing Twinkies.

We will know the full story after they've liquidated the assets and auctioned off the brands. Until then, we're arguing about how it seems to our untrained eyes. I wouldn't put much store in Ripplewood having written down their investment. That could be for various reasons. It does not say that they are not in line as one of the major secured creditors. I believe that they clearly are and if the income from the liquidation provides enough to pay off the company debt, then they'll get all their money back, plus their various fees.

I'll again include my disclaimer that most everything I post in this thread is based on my own opinions. The dust is far from settled on this.

 

[davefoc]

Well, that's going to depend on where you sit, isn't it? Let's say you're one of the creditors and the company has simply announced that it cannot afford to pay you (or any of their bills) the current payment due of 1.1 million dollars. Do you not wonder how they found 1.8 million to give to these executives yet just stiffed you for the 1.1 million payment?

And yes, I know that it's within the law, and I know that the judge has commented that this is normal, or actually a little lower than the scale he's seen in similar dissolution actions. I'm just wondering how everyone here favoring these remuneration packages would view it if it was their money being defaulted on.

I'd probably be OK with it. If the slightest hint of self dealing showed up I'd be pretty unhappy, but at this point I'd just be happy to recover as much as I could of my initial investment and these executive salaries are a tiny fraction of the overall secured debt of the company and they are an even smaller percentage of the total secured and unsecured debt. My guess is that the major secured creditors must be OK with the deals made with these executives or they could just take control of the company and put their own guys in place. The fact is that nobody wants the company as it is currently configured and all that is left is trying to retrieve some of the money that has been invested in the company back. Presumably, these guys were hired for their ability to maximize the revenue from the sale of assets and griping about their salaries is all that is left for people looking to vilify anybody except the unions for the demise of this company.

 

[Foolmewunz]

I'd probably be OK with it. If the slightest hint of self dealing showed up I'd be pretty unhappy, but at this point I'd just be happy to recover as much as I could of my initial investment and these executive salaries are a tiny fraction of the overall secured debt of the company and they are an even smaller percentage of the total secured and unsecured debt. My guess is that the major secured creditors must be OK with the deals made with these executives or they could just take control of the company and put their own guys in place. The fact is that nobody wants the company as it is currently configured and all that is left is trying to retrieve some of the money that has been invested in the company back. Presumably, these guys were hired for their ability to maximize the revenue from the sale of assets and griping about their salaries is all that is left for people looking to vilify anybody except the unions for the demise of this company.

Well, but I see people (I referred to them as Pavlovian a number of times) exclusively vilifying the unions as being the reason for the failure. There might even be a hint in the thread title.

As I mentioned in the post when I originally linked to the Fortune Magazine article, there's enough blame all around on this. They all contributed. I'm not arguing that management was solely to blame nor am I willing to accept that the unions are just a bunch of greedy parasites. I am arguing, as someone who spent four decades in middle management, that there's considerably more mismanagement here than union greed. PE has this problem in that it's, by definition, "private". A publicly traded company would've had considerably more visibility and would make a lot of our posts here superfluous.

 

[jhunter1163]

Well, that's going to depend on where you sit, isn't it? Let's say you're one of the creditors and the company has simply announced that it cannot afford to pay you (or any of their bills) the current payment due of 1.1 million dollars. Do you not wonder how they found 1.8 million to give to these executives yet just stiffed you for the 1.1 million payment?

And yes, I know that it's within the law, and I know that the judge has commented that this is normal, or actually a little lower than the scale he's seen in similar dissolution actions. I'm just wondering how everyone here favoring these remuneration packages would view it if it was their money being defaulted on.

That $1.1 million payment is per month; the $1.8 million is over a year ($150,000 a month, possibly more if the wind-down is accomplished faster). And the $1.8 million is conditional; it's possible that not all of it will be paid. They're not just cutting checks to these executives tomorrow.

As I've said in other posts, the management of Hostess is surely not without blame in this situation; but it is disingenuous to focus on this comparatively small issue and not look at the much larger issues of debt load, declining sales, antiquated work rules, etc. which combined to drive the stake into the heart of this American icon.

 

[davefoc]

Uh, Dave.... A couple of points:

That information has been available since I posted the link to the old Fortune article several pages ago.

Sorry.

I also haven't seen a lot of people arguing that this is Evil Republicans and that Obama would've done something. Obviously, he hasn't. This is in the Economics sub-forum and is not a discussion of politics.

I am mostly non-partisan and I didn't mention the Democratic Party as a political dig. However, I believe that over the long haul, forcing benefits significantly above market level has serious unintended consequences that will eventually cause the failure of a company or industry unless the government intervenes and provides a bailout as it did for the auto industry.

The theory that I am wrong about that is one of the Democratic Party's core beliefs. The idea, I guess, is that that raising benefits above market levels just increases benefits to workers at the expense of reduced profits by the owners. I made note of the fact that prominent Democrats were involved in the purchase and bankruptcy of Hostess because the result here at least provides an example of a case where the Democratic Party's support of government enforced coercion by unions produced a result consistent with what I would have expected and at odds with the Democratic Party's ideology associated with unions.

And, by the way, don't assume Ripplewood's going to get burned. As I've said a few times, let's wait and see what the assets sell for. Hostess Brands (the big stuff like Wonderbread and Twinkies) has sales of over 3 billion a year. Even if that's down from what they needed to make it work at HB, that's still a lot of product sales. The products may not have been profitable coming out of bakeries of a company that has across-the-board downward motion of its sales and market shares, but bakeries and bakery product companies producing a mix of products may be able to use their own production and distribution efficiency to make a nice profit on the sideline of producing Twinkies.

For all I know Ripplewood might make a profit, but it looks right now like that is unlikely. Even if the funds become available to reimburse the secured creditors there looks to be years of wrangling ahead by the unsecured creditors. Looking at the situation right now I suspect that Ripplewood couldn't sell their equity position for even 1 % of their investment. Would you like to be part of a consortium to buy them out? And if they do make a profit, is that bad? They put a lot of money at risk and if stuff works for them why wouldn't they deserve a profit.

We will know the full story after they've liquidated the assets and auctioned off the brands. Until then, we're arguing about how it seems to our untrained eyes. I wouldn't put much store in Ripplewood having written down their investment. That could be for various reasons. It does not say that they are not in line as one of the major secured creditors. I believe that they clearly are and if the income from the liquidation provides enough to pay off the company debt, then they'll get all their money back, plus their various fees.

...

This makes your position about the same as Wildcat's. We don't know if the company was looted but there is no evidence that they have done anything illegal or unethical right now. We don't know how the company's owners will make out in the bankruptcy. We don't know how much unsecured debt there is before what is left if anything from the sale will be available to the owners. All we have right now is speculation about possible corruption that has not been supported with any evidence except that the owners of some other companies have taken advantage of a bankruptcy to corruptly obtain corporate assets that rightly belonged to creditors.

 

[respect]

The theory that I am wrong about that is one of the Democratic Party's core beliefs. The idea, I guess, is that that raising benefits above market levels just increases benefits to workers at the expense of reduced profits by the owners.

Owners, consumers and non-insider labor share the costs.

 

[Darth Rotor]

It appears to me that the strike was the straw that broke the camel's back. That camel seems to have already had a load of debt and cost of doing business before that strike was called. Hostess Brands seem to have run into a cash crunch in operations that their most recent investors rewarded by tossing good money after bad. *shakes head* Beyond that, I'll be happy to never eat another twinkie any time soon, since I have stopped eating crap like that years ago.

As it goes for this thread, I find the OP title to be misleading.

Beyond that, have enjoyed reading this discussion, mostly, as it differs a bit from some of the other coverage of this story I have read.

 

[Scopedog]

http://www.addictinginfo.org/2012/1...es-fat-bonuses-for-greedy-hostess-executives/

Oh good, another completely unbiased website:

"Addicting Info started as a resource to discredit all the lies and propaganda that the right-wing spreads. When I undertook the project I thought I would probably have about 100 different articles about a number of different myths, and people could sort through them at will. Eventually that expanded to news and other info, and I quickly realized the DAUNTING task of actually trying to discredit EVERY right-wing myth that is in existence, especially with the constant creation of new ones."

 

[Foolmewunz]

Oh good, another completely unbiased website:

"Addicting Info started as a resource to discredit all the lies and propaganda that the right-wing spreads. When I undertook the project I thought I would probably have about 100 different articles about a number of different myths, and people could sort through them at will. Eventually that expanded to news and other info, and I quickly realized the DAUNTING task of actually trying to discredit EVERY right-wing myth that is in existence, especially with the constant creation of new ones."

Know your posters. I'm afraid Muldur couldn't convince his Google to direct him to unbiased news sites if he offered it virtual hookers and virtual blow.

Unfortunately, his post appears right after mine, which had a fairly valid story (much the same as the one he linked to - minus all the "Eat The Rich!" rhetoric).