Demise of Hostess sweetened only for a few

December 6, 2012

There is nothing sweet about the Hostess liquidation except for the deal its top executives are getting.

The company that has pleasantly hardened arteries and rotted bicuspids for generations, with its gooey and tantalizing snack cakes, is going out of business.

Hostess Brands Inc. filed for Chapter 11 bankruptcy in January, citing the high costs of having a unionized workforce. It later forged a contract agreement with its largest union, the Teamsters, but couldn’t with No. 2, the bakers, who walked out Nov. 9. The company announced liquidation plans a week later, contending the bakers’ strike prevented Hostess from achieving normal production.

The firm went to bankruptcy court last Thursday and got final approval of its wind-down plans, the most onerous being the termination of 18,500 employees.

Twinkies, Ho Hos, Ding Dongs and other favorites will likely live on, though, as Hostess said it is talking with 110 potential buyers of its brands, including reportedly five or more national retailers. Weight Watchers, Jenny Craig and Dick’s Sporting Goods probably aren’t among the suitors.

Survival is a wonderful prospect for snackophiles worldwide … and cardiologists, fitness instructors and dentists. It doesn’t do a thing for the thousands of newly jobless, or for sugar fiends in need of an immediate Twinkie fix.

Those top executives? Their wallets, in the short term, will be getting fatter than any Hostess addict could become if locked in a storeroom with two cases of Devil Dogs.

The company last week also received approval to give 19 corporate officers and high-level managers bonuses totaling up to $1.8 million for meeting specified liquidation goals. Hostess maintained in court that the incentive pay was needed so it could retain the 19 to help direct the wind-down process, which may take a year.

If all attain said objectives, the 19 would reap an average of nearly $100,000 apiece. Oh, and that would be on top of another year of their regular pay, which – one suspects – is better than that of members of the bakers union.

Now these may be the 19 most capable executives in the world, and all of them may be needed to seamlessly execute the liquidation, and financial incentives may help to ensure their efficiency. And, no, they aren’t guaranteed jobs beyond completion of the liquidation, so the $100,000 that amounts to about a two-year safety net is quite civil.

But $100,000 apiece seems to be a lot. And where is the safety net for the 18,500 who have been displaced?

Besides, how capable are all 19 executives if they are leading a company that had to file for Chapter 11 for a second time in less than a decade? At least they have the spongy Twinkies to cushion their fall.

Ah, but there’s more. The Associated Press reported that two of those executives could be eligible for additional rewards if this liquidation goes swimmingly.

Hostess, however, is not run by ding dongs. It does have limitations to its largesse – an unfortunate sounding word when highly caloric snacks are the subject. CEO Gregory Rayburn will not be eligible for bonuses. Rayburn, brought on this year as a restructuring expert, will have to get by on his monthly salary of $125,000.

These are comforting thoughts for the 18,500 now seeking employment in an economy softer than a loaf of Wonder bread, and for those relying on retiree benefits the company can no longer pay.

Hostess treats may be gone, but probably not for long. There are those 110 potential buyers, who probably all said “ho ho” when they examined Hostess’s bottom line. Despite declining sales in recent years, they still amount to an attractive $2.3 billion to $2.4 billion a year.

The snacks will be back in pantries nationwide, Hostess cakes by another other name would taste as sweet.

Rick Shrum writes about business for the Observer-Reporter.

Rick Shrum joined the Observer-Reporter as a reporter in 2012, after serving as a section editor, sports reporter and copy editor at the Pittsburgh Post-Gazette. Rick has won seven individual writing awards, including two Golden Quills.

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