Death of Twinkies: A Union Contract Hit

By Markets FOXBusiness

Hostess CEO: If You Don't Like Package, Find a New Job

Hostess Brands CEO Gregory Rayburn on the workers' strike.

In the death of Hostess Brands, progenitor of Twinkies, Devil Dogs and Ding Dongs and other artery-clogging, icing-adorned icons of Americana, plenty of factors get the blame.

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Management didn’t cut deep enough, soon enough. Plants didn’t update. Marketing failed to innovate. The product line stayed unstintingly junky, defiantly flouting America’s reluctant reset to low-fat fare.

But the real reason Hostess had to die at this particular time? This was a union contract hit.

And that offers a disturbing glimpse into the delusional, drunk-with-power mindset of unions -- which represent barely 7% of the private work force in the U.S. -- as they embark on a second term of way-too-cozy relations with their supplicant in the White House.  

President Obama, ever grateful for the millions of dollars and thousands of foot soldiers provided by union support, will continue trying to end-run Congress and make it easier for unions to sink their hooks into business.

Yet unions are in stark denial of the need for significant cutbacks in their lush contracts if their employers are to survive. This is especially true in the demise of Hostess Brands.

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Hostess’s hired gun and CEO, Gregory Rayburn, the workout “cleaner” creditors had brought in to try to save the company, had said repeatedly that he would have to shut it down unless a dozen unions accepted cutbacks in pay, benefits and stupid, featherbedding union work rules.  

Even the Teamsters had agreed to his plan. (And those guys “will crack you over the head,” as a union guy warned me many years ago when a strike loomed at the Detroit News and I, a lowly intern, had said I might cross any picket line.)

But the 5,600 workers in the bakers union at Hostess went on strike. The leadership of the Bakery, Confectionery, Tobacco Workers and Grain Millers whispered to workers that the company was bluffing, or a white-knight buyer may emerge. Hard to know whether this was blatant deception or foolish miscalculation; I’d suspect a bit of both.

Then Rayburn, somber not swaggering, came on-air with me on “Markets Now” in the noon hour on Thursday and reiterated his threat: The bakers must return to work by 5 p.m. that day, or the company would file to liquidate on Friday. See the video here.

Rayburn even had a company press release hand-delivered to picketing workers at a dozen plants, warning them of the 5 o’clock ultimatum.  He was hoping to separate the members from their kamikaze leadership.

It didn’t work. On Friday, Hostess filed in bankruptcy court to liquidate the company. With extreme prejudice. Today, Rayburn seeks court permission to start selling off pieces.

So now all 18,500 workers at Hostess Brands just lost their jobs. Way to go guys!  Bake me a lie, as fast as you can.

Brace yourself for a wave of union propaganda-as-apologia. You’ll hear Obama-echoes of sniping against private equity a la Mitt-Bain Capital: “Romney-Style Economics Behind Decline of Hostess, But Workers Are Paying the Price,” says one website affiliated, predictably, with the AFL-CIO.

Those vulture capitalists must have sucked out hundreds of millions of dollars by leveraging up the company, right? (Answer: wrong. Ripplewood Holdings injected a total $150 million in three dollops as Hostess sank deeper into trouble.  It lost every dollar.)

The unions will say management had given itself millions in pay raises while demanding worker cuts. (True, but the raises were barely a rounding error at a company that had lost almost half a billion bucks in two years; and Rayburn rescinded the raises anyway, making the brass work for a dollar a year apiece.)  

The unions will blame the company for taking on almost $900 million in debt. (Yet that debt cost Hostess all of $45 million in interest last year, when its total losses swelled up to $340 million).  

And here’s what you won't hear the unions ever talk about:

--Hostess paid out almost $100 million in health benefits for retirees last year, but over half of it covered workers who never had worked at Hostess.  The Teamsters’ onerous and antiquated “multi-employer pension plan” foists the pension obligations of a bankrupt company on to the balance sheets of surviving rivals—ensuring a steady death spiral in any declining industry. A similar “MEPP” almost killed YRC, one of the largest trucking companies.

--Union rules forced Hostess to run separate truck fleets for delivering bread vs. sweets. A sweets driver, serving a 7-11 store, was forbidden from restocking shelves with breads already delivered and waiting in the back—he had to call for a bread driver to swing by and handle.

--The union restrictions on the 5,500 distribution routes at Hostess made it unprofitable to serve tiny outlets, yet Hostess was barred from using smaller, sleeker—and non-union—distributors.

--Workers were asked to take an 8% pay cut and pay 17% of their health-care costs instead of zero. Welcome to the club, guys.  For this, they would have received 25% ownership of Hostess plus $100 million of Hostess debt to be paid back to the unions.

But the bakers wouldn’t budge.

In the months ahead a chop-shop or food giant may resurrect various Hostess brands, but those 36 plants are shuttered, those 18,500 jobs are gone for good. The union preferred to picket while an 85-year-old company suffocated . . . rather than risk having to face inevitable demands for similar concessions at other employers across the country.  

Those demands will be forthcoming, anyway, because, as President Obama likes to say in slapping the rich with higher taxes, the math doesn’t work.  The only questions are which union will be next, and whether anyone reasonable (or sane) will be listening.

Even a parasite is smart enough to know not to kill its host.  In the case of unions, the presence of such preternatural intelligence isn’t yet readily apparent.

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