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View Diary: Private equity-owned Hostess blames striking workers as it liquidates (263 comments)

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  •  Here's the question that needs to be asked (11+ / 0-)

    could the company have paid what the union was demanding and retained a decent profit margin so that it made sense to pay it what the union wanted and keep operating?  

    (The raises for the executives is a nice talking point, but as a general matter, some increase in executive pay is not going to be enough money in the overall scheme of the company's expenses to make much of a difference in the company's overall profitability.  Sort of like the Buffett Rule in the tax debate -- a nice point to make as a matter of principle, but it's not enough money to make much different)

    That's something the union should know BEFORE it goes on strike.  If you are striking for something the company can afford and still retain a decent profit margin, that's a sound position.  If, however, you've done an analysis of the company's financial position, and they cannot make the concessions you are seeking and retain a decent profit margin, then a union strike is a disservice to the members, because it is sacrificing their jobs in the name of a principle.  The question is, will a strike be likely to get the workers the concessions they are seeking?  And the answer is "yes" if, and only if, the company can make those concessions and still make a healthy profit for the owners of the company, whoever those owners are.  If making the concessions means that the owners will have a very low profit margin, or even no profit at all, then then answer is "no, you are unlikely to get what you are seeking" because it makes financial sense for the owners to liquidate the company and invest that capital somewhere else where it can generate a better profit margin.  

    From all indications, this company had been having financial problems -- previous bankruptcies, restructuring, and they were CURRENTLY under the jurisdiction of the bankruptcy court, whose job it was to make sure that the companies creditors had the best chance for getting repaid.  You can put forward theories as to why they were in the position they were in, but the fact is that is where they were when the union decided to strike.  I certainly hope the union had done the analysis to know whether the company could afford to make the concessions they were demanding and maintain a decent level of profitability.  And I hope that, in light of all this negative publicity about the union, they share that so we can see whether it really was management being obnoxious, or whether the company was, in fact, in a financial situation where the position of the union, if agreed to by the company, meant that the profitability of the company was reduced to unacceptable levels - or would not be profitable at all.  

    As for this:

    Our members know that the plans all along of the Wall Street investors currently in control of this company did not include the operation of Hostess Brands any longer than it takes to sell the company in whole—or in part—in a way that will maximize the profits of these vulture capitalists regardless of the impact on the workforce.
    Unfortunately, capitalism means that capital (investment) must be put to its "best use" in terms of generating a return on that investment, or "maximizing profits."  It's not pretty, but that's what it is about.  If capital is not being employed to "maximize profits," it will be pulled from one investment and used elsewhere.  That's the system we operate under, and a union needs to take that into account when it decides whether a strike is likely to get the workers the demands they are seeking.  
    •  Valid points (2+ / 0-)
      Recommended by:
      veuve, ColoTim

      This is the real world, in this case much more so for the workers than for us.

      I agree it's important not to jump on to easy talking points in the context of a more complicated story.

      Money is a harsh mistress, and capitalism is a binary phenomenon - yes/no, on/off, black/white, profit/loss.

      There's a touch of gray here, though - "...(if) the profitability of the company was reduced to unacceptable levels..."

      Unacceptable as determined by whom?

      Quite a contrast to this story, though.

      "Life is a bitch, and then you die. And then you come back." Old Buddhist proverb

      by RubDMC on Fri Nov 16, 2012 at 07:24:51 AM PST

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      •  Unacceptable as determined (4+ / 0-)
        Recommended by:
        RubDMC, catwho, VClib, WillR

        by the investors -- those whose money it is.  

        Part of that is math (comparing the ROI to what ROI you can get elsewhere, while considering other economic factors, such as tax consequences), part of that is a judgment call  on the part of the investors.  

        But a union can look at the financials of a company and make some educated guesses about whether it has a realistic expectation of succeeding.  

        •  Never ask a question... (0+ / 0-)

          ...where the answer isn't already known.

          This story exemplifies the classic investor/worker equation (which too often is a division).

          Or, to put it in more recent familiar terms, takers/makers (in the same order).

          "Life is a bitch, and then you die. And then you come back." Old Buddhist proverb

          by RubDMC on Fri Nov 16, 2012 at 08:19:32 AM PST

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        •  If ROI was all that mattered (7+ / 0-)

          There are whole industries where nobody would invest anything. The return on different products is never equal... if what you say is true, nobody would be making whatever it is they make, because there would always be "some other business" that could produce a higher return.

          Businesses aren't started by accountants, they're started by people with a vision. And to be successful, they're run by someone who can continue that vision, and adapt it as times change.

          Sure, investors can be a key player in many businesses, but when you have investors trying to run a business purely by "looking at the numbers", it's doomed to fail - whatever it is. Good investors know this, and they make sure the business is being run by someone who knows what they're doing. Bad investors run things into the ground, like Hostess.

          Freedom isn't free. So quit whining and pay your taxes.

          by walk2live on Fri Nov 16, 2012 at 08:53:41 AM PST

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          •  walk2live - professional investors are always (0+ / 0-)

            looking for the highest possible return, on a risk adjusted basis. The adjustment for risk is what makes low risk investments attractive, even if the expected return is small. For higher risk investments, like startups, investors are looking for the potential of 5-10 times their invested capital over a 3-5 year period. Buying existing companies, with brand identity and a financial history, is completely different. However, I agree with you that the most successful investors have domain expertise and hire experienced industry managers.  

            "let's talk about that"

            by VClib on Fri Nov 16, 2012 at 01:47:04 PM PST

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            •  Although... (1+ / 0-)
              Recommended by:
              VClib

              ...there are counter examples. IBM, under Lou Gerstner's leadership, shifted gears (focusing more on services and complete solutions than on hardware) and the company was very successful under his leadership. When he joined, there was actually a plan in place to dismantle the company and sell the pieces. While he was CEO, from 1993 to 2002, the stock increased in value about 6x or 7x IIRC.

              What was Lou Gerstner's prior job? Chairman and chief executive officer of RJR Nabisco (and an executive at American Express prior to that). I.e., no experience in managing a computer vendor.

              Good executives are good executives, no matter what they manage. What they don't know, they ask. What others can do, they delegate. Most importantly, good executives (and good managers in general) have an innate understanding of people and pick good people, generally with some background in the industry,  to report to them and execute the vision.

              Management, like sales, is a profession. What is being managed or what is being sold is secondary for those most skilled in the craft.

            •  If you define "professional investors" (0+ / 0-)

              very narrowly, you're probably right. But, there are many ways that money is invested in business. I think it is pretty generous to call the people who've run Hostess into the dirt "professional investors". They're a bunch of screw-ups with money.

              By that logic, no professional investor would ever touch, say.. the airline industry. In aggregate, the industry has barely turned a profit in its history. Yet, we still have companies flying airplanes (Some of them have done well, but in the big picture, it's not a great industry to park your money in). It's a large-risk, low-return bet. So, why does anyone fly a plane?

              If Hostess had been run by a committed group of individuals who had a personal stake in the outcome of the company (say, "the Hostess family" or the employees themselves), there's a much better chance they'd still be making Twinkies & a bunch of people would have good jobs there. Such owners wouldn't constantly be looking for "better returns" (i.e. somewhere else to put their money), they'd be looking at how to make Hostess a better company, because they'd have a personal stake in its success.

              Freedom isn't free. So quit whining and pay your taxes.

              by walk2live on Fri Nov 16, 2012 at 06:49:10 PM PST

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      •  Rec'd for linking to the Bob's Red Mill story. (3+ / 0-)

        Buy from the employee-owned company and make your own, healthier baked goods.

    •  Blather (12+ / 0-)
      If, however, you've done an analysis of the company's financial position, and they cannot make the concessions you are seeking and retain a decent profit margin, then a union strike is a disservice to the members, because it is sacrificing their jobs in the name of a principle.
      How do you define "decent profit margin?" Apparently upper management viewed "decent" as including whopping pay raises to guarantee silence. Existing management conspired with vulture capitalists to strip the company down to it's pure value as a brand. Which they then intend to sell to the highest bidder. Workers knew all along management would never make concessions. The strike puts them in a stronger position for dealing with the eventual buyer. At the end of the day this is about the process of baking little cakes, and someone has to do the baking.

      Gun rights, abortion rights, workers rights...are any of your views in sync with the editorial stance of this website and it's users?

      •  Decent is determined by (3+ / 0-)
        Recommended by:
        puakev, VClib, Jon Says

        those whose money is invested, the owners.  And it is determined in part by looking how the return on this investment compares with the ROI they can get elsewhere with that same capital investment.

        But unions can make educated guesses.  There is lots of information out there on ROI in an industry basis, and the unions can look at the financials of the company and make pretty educated guesses.

        •  The Teamsters seem to be aware that Hostess is (4+ / 0-)

          in financial trouble.

          On Wednesday, Nov. 14, Hostess Brands indicated that if it couldn’t resume normal operations by 5 p.m. EST on Thursday, Nov. 15 that it would have to begin the liquidation process. Teamster Hostess members and all Hostess employees should know this is not an empty threat or a negotiating tactic, but the certain outcome if members of the BCTGM continue to strike. This is based on conversations with our financial experts, who, because the Teamsters were involved in the legal process, had access to financial information about the company.
          Looks like Hostess is looking for a buyer.
          Would not be surprised if they are absorbed by the Grupo Bimbo blob.

          -4.38, -7.64 Voyager 1: proof that what goes up never comes down.

          by pat bunny on Fri Nov 16, 2012 at 08:01:47 AM PST

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        •  True, but those owners have responsibilities too.. (9+ / 0-)

          It should be noted that "the owners"--the two hedge funds and the venture capital group--have gone through 6 CEOs in 8 years, and that none of those 6 CEOs had experience in the bread/cake baking industry.  The current CEO is a "restructuring specialist" brought in after the previous CEO (Driscoll) took his $2.5-million payday and bolted after the executive pay boost last year.

          That seems a pretty clear indicator that the owners were not particularly interested in profiting from the operations of the company.  To be profitable in a given industry, you need senior management who understands the industry - and the CEO slot at Hostess has been missing that experience ever since the hedge funds and venture capital group took ownership.

      •  Exactly (3+ / 0-)

        Corporations have more than an obligation to their stockholders, they also have an obligation to their communities - to the federal, state and local governments who give them tax breaks and incentives.

        This strike represents a turning point in our national dialogue about how much we as individuals, voters and communities should sacrifice to help privately owned businesses that serve only their investors.

        It's time to end these practices and pass laws that make businesses more ethical, more responsible, more beholden to their workers and the general public who are responsible for their existence.

        Please stand by. I'm looking for a new sig line.

        by Betty Pinson on Fri Nov 16, 2012 at 07:45:56 AM PST

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    •  That's not the goal of these "deals" (7+ / 0-)

      In these scenarios, the "investors" make their profit from extracting as much as possible from the company and the usurious loans, then dismantling it.

      The whole endgame is the destruction of the company.  

      Please stand by. I'm looking for a new sig line.

      by Betty Pinson on Fri Nov 16, 2012 at 07:37:58 AM PST

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    •  Without the hedge funds? Yes, I think so. (11+ / 0-)

      Hedge funds target union industries, load them up with debt, bankrupt the company, and then say "We can't afford these bloated union salaries".

      If the hedge fund parasites were sent packing, and if all their debt was forgiven, I have no doubt Hostess would be able to go on being profitable while paying union wages.

      But the company can't pay the union wages and the Wall Street vultures at the same time.  That's what's happening here.

      •  Load them up with debt and take the money out (2+ / 0-)

        either as gigantic salary payments or in special cash distributions to partners.

        The BK court is in it to protect the interests of creditors, not the owners.   They'll liquidate the assets to pay off the creditors leaving the hedgies to keep the loot they've already taken.

    •  demanding concessions? (7+ / 0-)

      "I certainly hope the union had done the analysis to know whether the company could afford to make the concessions they were demanding and maintain a decent level of profitability."

      It doesn't seem like any union was demanding concessions. Management was demanding concessions. They were demanding another round of pay and benefit cuts for workers (while giving raises to upper management). The unions had previously accepted a round of pay and benefit cuts, and were being asked to accept more of them. One of the unions (Teamsters) agreed to make the requested concessions, while another (BCTGM) did not.

      So let's at least keep straight here about which side was "demanding concessions". That said, reading the Teamsters' statement from yesterday (linked in the comments above), it seems like BCTGM made a miscalculation here, perhaps didn't have all the facts, and didn't handle their voting very well. However, for such a large company not to be able to weather something like this suggests it was on the ropes already, and may not have lasted very much longer regardless.

      •  IT WAS IN BANKRUPTCY....! (0+ / 0-)

        For gods sake how much more "weather" do you need?

        And you neglect to mention that in exchange for the cuts the employees were being offered a 25% stake in the company and a board seat.

    •  Well, reality trumps principle... (8+ / 0-)
      That's something the union should know BEFORE it goes on strike.  If you are striking for something the company can afford and still retain a decent profit margin, that's a sound position.  If, however, you've done an analysis of the company's financial position, and they cannot make the concessions you are seeking and retain a decent profit margin, then a union strike is a disservice to the members, because it is sacrificing their jobs in the name of a principle.
      There were three aspects to the cuts in the contract imposed by the company:

      * Immediate 8% wage cut, with only a 3% wage increase guaranteed next year and 1% the year after that,
      * The company had already (unilaterally) stopped its contributions to the employee pension fund, and
      * The company shifted roughly 30% of the costs of health insurance to the employees.

      So, the total wage/benefit cuts came out to 27%-32% for individual employees.  The company did offer a 25% stake in the company, but 25% of a company already in Chapter 11 for the second time (3rd time in a decade, if you count the IBC bankruptcy of 2004 that led to Hostess being sold to its current owners in 2009) isn't much of a carrot.

      I'd say that merits a 92%-8% strike vote from any union.

    •  The problem...no plans to operate in long-term. (1+ / 0-)
      Recommended by:
      happymisanthropy

      This means that if we consider this corporation as a person, then the union just voted for euthanasia as opposed to a lengthy and terminal illness.

      "Politics should be the part-time profession of every citizen who would protect the rights and privileges of free people and who would preserve what is good and fruitful in our national heritage." -- Lucille Ball

      by Yamaneko2 on Fri Nov 16, 2012 at 09:09:03 AM PST

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