Hostess, which filed for bankruptcy last year and began liquidating its assets in November, announced that it has accepted the latest stalking-horse bid worth $410 million for the purchase of its snack cake brands, bringing the total amount of stalking-horse bids for its bakery brands up to $858 million. The bids establish a floor where bidding will begin at a February 28 auction when the bankrupt company’s brands and assets will be put up for sale.
C. Dean Metropoulos & Co. and Apollo Global Management joined together to submit the snack cake bid. The bid is a proposed price for brands such as Twinkies and Dolly Madison and five bakeries where the products were made.
C. Dean Metropoulos & Co. has bought other famous but troubled brands including Pabst Brewing Co. and successfully turned them around.
“We share these bidders’ goal of quickly restoring Twinkies®, CupCakes®, Ding Dongs® and Ho Hos®, among others, to shelves across America, and view new, serious ownership as a necessity for building a sustainable model for these brands moving forward,” said David Durkee, president of BCTGM, a union representing 5,000 Hostess bakery workers. “The BCTGM looks forward to the opportunity to work together productively and is now engaging with bidders who recognize the value that we can bring to an ongoing business.”
Previously, Hostess had accepted a $360 million bid from Flowers Food, Inc. for Wonder Bread, Butternut, and other bread brands and 20 bakeries where they were made. Two other companies made successful stalking-horse bids on other lesser known Hostess brands.
The $858 million stalking-horse bids are almost twice as high as a 2011 estimate of the company’s worth.
Hostess went out of business in November after BCTGM members went on strike.
Before the strike, members overwhelmingly rejected the company’s take-or-leave-it final contract offer that cut wages by 27 percent over five years, increased worker health care expenses, reduced health care benefits, and did not restore pension contributions.
The media has dutifully reported that the strike caused Hostess to go out of business and lay off 18,000 workers, but Mike Hummel, a member of BCTGM Local 218 and a 14-year Hostess employee, tells a different story in a video entitled, “Inside the Hostess Bankery: Who Keeps the Dough.”
According to Hummel, the three private equity firms that own Hostess purposely provoked the strike by making a lowball final last best offer, which they knew BCTGM members could not accept. They then used the strike as an excuse to liquidate the company and sell off its assets.
The sale, says Hummel, will turn a nice profit for the private equity firms.
Ripplewood Holdings, Silver Point Capital, and Monarch Alternative Capital bought Hostess in 2009 after the company filed for bankruptcy for the first time. As part of the deal, the new owners asked Hostess union workers to make contract concessions estimated to be worth $110 million.
The new owners said that they would use money saved by the concessions to modernize the bakeries and make Hostess products competitive.
Among other concessions, workers agreed to allow the owners to deduct $10 a week per worker from worker paychecks. The deductions would be used to fund infrastructure improvements at the bakeries.
But according to the workers interviewed by Hummel, those investments never took place.
The CEO gave himself and other executive raises and bonuses, then blamed the workers for the bankruptcy, said Kenneth, a Local 218 member. “I feel if they were going to do something like that, they should put it on the fact that they didn’t spend money on equipment that we were working with because a lot of equipment was breaking down and needing repairs,” he said. “The money they stuck in their pockets should have been money that they should have invested in the company.”
Other workers interviewed by Hummel tell a similar story. Workers constantly had to make do with broken and antiquated equipment and few if any of the promised modernizations ever got off the ground.
In addition to not keeping their promise to invest in the company, the new owners decided to keep workers’ money that was supposed to be used to fund pensions.
Under terms of the old contract, BCTGM members’ compensation package includes $4.25 per hour per worker that went to the workers’ pension fund, which pays for a pension, retiree insurance, and a death benefit. But in August 2011, Hostess stopped sending that $4.25 an hour to the pension plan and instead kept it. Some of that money was used to pay executive bonuses and raises.
“They stole $50 million from our pension,” Hummel said.
The company owners have never returned this money, and the bankruptcy court has ruled that they don’t have to.
According to Hummel, the theft of their pension and the new owners’ broken promise to invest in the company made BCTGM members wary of making more sacrifices, and that’s what led to the company’s demise.