Hostess Brands workers are waiting for the company to make its next move as Hostess tries to impose a new labor contract that has been approved by a bankruptcy court. One of the unions that represents workers at the company’s bakeries, the Bakery, Confectionary, Tobacco Workers, and Grain Millers Union (BCTGM), has said that imposing the terms of the new contract will result in a strike by its members.
In September, 92 percent of BCTGM members rejected a final offer by Hostess, which in January filed for Chapter 11 bankruptcy. Hostess’ final offer, which cuts pay by 8 percent, freezes pensions, increases worker health care costs, and changes work rules, was a key piece of the company’s plan to exit bankruptcy.
Before BCTGM rejected Hostess’ final offer, 54 percent of Teamster members who work for Hostess and voted on the offer chose to accept it. Teamster leaders did not endorse the final offer, but told members that rejecting it could result in job losses.
Prior the voting, Hostess CEO Gregory Rayburn’s said that if either of the two unions or the 10 other unions that have smaller numbers of members working for Hostess rejected the final offer, the company would shut down and liquidate its assets.
After BCTGM members rejected the offer, Hostess changed its mind about going out of business and instead returned to court to ask the bankruptcy judge to allow the company to impose the terms of its final offer. It argued that imposing the offer was essential if the company wanted to exit bankruptcy because high labor costs had caused the bankruptcy.
Throughout the bankruptcy proceeding, both the Teamsters and BCTGM have maintained that poor management rather than high labor costs caused the business failure that resulted in Hostess’ second bankruptcy in less than ten years.
“Our members have seen this company squander more than $50 million that it was contractually obligated to put towards our members’ pension,” said BCTGM President Frank Hurt after members rejected the final offer. “They have seen the company fail to invest in product development and new plant and equipment as was promised when the company emerged from its previous bankruptcy (in 2009) and for which our members made significant concessions.”
Last spring a business restructuring expert hired by the Teamsters testified at a bankruptcy hearing that Hostess management failed to invest sufficiently in modernizing production, hollowed out Hostess’ once dominant distribution system, and did a poor job of marketing its products.
Another expert hired by the Teamsters testified at the same hearing that Hostess’ labor costs were comparable to regional competitors.
Nevertheless, during the October hearing on Hostess’ request to be allowed to impose its final offer, the judge sided with the company and on October 4 ruled that the company could proceed with imposing its final offer on BCTGM and five other unions that either rejected the offer or are still considering it.
After winning the judges approval, Hostess said that it will impose the final offer within the next 45 days. BCTGM has said that doing so will result in a strike.
BCTGM locals have been meeting to plan for a strike if the company imposes the new terms.
After BCTGM members rejected the company’s final offer in September, Hurt explained why.
“(Members) rejected (the offer) because it was an outrageously unfair proposal from a company that has destroyed the trust of its workers through years of mismanagement, greed and unfulfilled promises,” Hurt said.
The company exited from its first bankruptcy in 2009 after both the BCTGM, the Teamsters, and other unions agreed to concessions. Teamsters estimated the cost of their concessions to be $60 million.
After the unions agreed to concessions, Hostess’ former owner Interstate Bakeries Corporation reached a deal with Ripplewood Holdings, a private equity company, for Ripplewood to purchase the company.
Ripplewood committed $130 million of its own money to the deal and borrowed hundreds of millions of dollars from General Electric Capital, GE Capital Markets, Monarch Master Funding, and Silver Point Finance.
As part of the deal, Ripplewood paid itself $3 million in management fees to oversee the restructuring of Hostess.
Hurt is wary that Hostess’ final offer to its union employees is just another way to force another round of concessions that will make Hostess more attractive to another private equity buyout.
“Our members know that this is a company that is controlled by Wall Street private equity and hedge fund firms, whose sole objective is to maximize their own returns, not rebuild a company for the long haul,” Hurt said.
Hurt said that a deal with Hostess is still possible if Hostess pays the $50 million in pension contributions that it has withheld from BCTGM members and returns to the bargaining table with a fair offer that includes a plan for long-term growth at the company.