Regarding the bankrupty of Hostess Brands, the manufacturer of Twinkies and other such junk foods, the knee-jerk reaction among pathological union-bashers has been to blame organized labor for the company’s fate.
But it isn’t quite that simple, as Jordan Weissmann EXPLAINS:
This is not a simple story that anybody should try to slot neatly into their political talking points. It’s not just about Wall Street preying on Main Street, or big bad labor unions sucking a wholesome American company dry. It’s about an entire galaxy of bad decisions that will cost many people their jobs and money.
Already, a few parties have tried to politicize this affair. The AFL-CIO today called it “a microcosm of what’s wrong with America, as Bain-style Wall Street vultures make themselves rich by making Americans poor.” GOProud sent a winking blast email headlined “Unions Kill Twinkies” (literally, they wrote in a wink).
Both takes are exceptionally reductive. Let’s look at Wall street first. The private equity guys will likely lose most of their investment, since their stake in the company will be worthless. It’s also not clear that the hedge funds and other lenders that supplied Hostess with its mountain of loans will fare much better. When it entered Chapter 11 this year, the company owed around $935 million, if you include the additional loan it took out to keep the lights on and creme flowing. Meanwhile, Reuters reports that the company listed $981.6 million worth of assets in its bankruptcy filing. There’s virtually no chance they’ll sell for that much in a liquidation. One of the failed bids to buy the whole company out of its last bankruptcy valued it at just $580 million. And that was when it was a going operation. If you factor in the interest payments Hostess has been making on its loans, some of the creditors might end up making out ok. But it doesn’t seem likely anybody will make a killing.
In short: the smart money guys larded Hostess with too much debt and never figured out a real plan for fixing its business. They’re coming out with a loss as a result.
As far as the unions go: You can blame them for not making enough concessions. You can blame the bakers for administering the final death blow. But you can’t blame them for management’s strategic incompetence, or the decision to try to run a flailing company on debt, hope, and empty calories.