Counterparties: Our sweet creamy center cannot hold

November 16, 2012

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Hostess, the maker of Twinkies, Ding Dongs and Wonder Bread, is closing up shop, taking 18,500 employees, 33 plants and approximately 750 billion calories worth of annual Twinkie output down with it. (Yes, we did the math.)

Hostess’s second bankruptcy since 2004 has had a few immediate effects. First, a group of very unlucky reporters were assigned to cover the Great Twinkie Panic of 2012: “Twinkie Junkies Raid Stores as Hostess Brands to Close” read one Bloomberg headline, while Mashable contrived to find an opening bid for a single Twinkie for $5,000. Second, the entire western world took to Twitter to make the same jokes about how long Twinkies last. Others made marginally funnier quips about whether Mexico’s Bimbo will buy the Ho Ho brand.

But what unforgiving capitalistic forces are keeping Twinkies from America’s increasingly diabetic hands? “The union has been the death of this company”, one former HR worker told Reuters. Of course, this is not the whole story: CEO pay was also increasing as the company struggled. David Kaplan’s long piece on Hostess from July blames management, distressed debt investors, and a stale — if not perishable — product. Kaplan writes that the Teamsters “had separate drivers for deliveries of such goodies as Yankee Doodles and Nature’s Pride Nutty Oat,” a “job-preserving” move that Hostess approved during the last labor agreement. Generally, the company seems like a manager’s nightmare:

The Balkanized nature of its empire gave Hostess a piecemeal labor situation, including a matrix of 372 collective-bargaining agreements, a dozen separate unions, 5,500 delivery routes, and no fewer than 40 multi-employer pension plans [MEPPs] that are despised by management.

Those pensions, Kaplan notes, include some of America’s most underfunded plans: MEPPs cover some 10 million Americans and are underfunded to the tune of $369 billion, according to Credit Suisse.

It was the striking bakers’ union that Hostess specifically blamed for the shutdown . (The union’s website promptly crashed today). As Dave Jamieson reports, this left the Teamsters out to dry. In September, Hostess Teamsters agreed to pay and pension cuts, and later called for the bakers’ union to hold a secret ballot vote to end the strike. One Teamster described the bakers’ obstinance this way: “They’re losing [5,000] jobs, but they’re costing 18,900 people their jobs.”

But don’t despair, Twinkie lovers. The brand, Dan Primack writes, “still has value and will be acquired”. And there’s online petition calling for the White House to nationalize the Twinkie industry “and prevent our nation from losing her sweet creamy center”. — Ryan McCarthy

On to today’s links:

EU Mess
In Europe, “it’s a great time to be issuing high-yield debt but not to be investing in it” – Dealbook

The Justice Department got caught fudging its numbers on financial fraud prosecutions — again – Jonathan Weil

To understand the fiscal cliff, you have to understand capital gains and dividend tax rates – James Kwak

FHA projected to lose $16.3 billion, may need a taxpayer bailout – WaPo

Our complete failure to live up to our economic potential, charted – Neil Irwin

“Hot Money”
JP Morgan refuses to be left behind in the money laundering regulatory action-league tables – WSJ

Yes This Is Real
How to buy other people’s (canceled) wedding plans below par value – Springwise

New Normal
Scaling down: KKR launches funds with $2,500 minimum investment – Bloomberg

The Senate is in recess until Nov. 26, when it votes on a “point-of-order targeting the hunting bill” – Politico

Old Timey
Thomas Jefferson, pour-over coffee innovator – Maria Popova

Legal letter suggests new NYT CEO knew of Savile sexual abuse accusations before leaving BBC – NYT

Anti-virus company founder John McAfee has gone “bonkers”, is hiding from Belize police – Wired

“If Karl Marx had been alive in 2007, he would have been working for a bank” – FT


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Another way to do the numbers of calories taken off line by shuttering Hostess:

Google ’750e9 Calories per year in MW’ to find that about 100 MW were taken down, about one tenth of a run-of-the-mill nuclear power reactor. That’s quite the DIng Dong.

Posted by MSM-Reuters | Report as abusive

The First Lady will not let President Obama bail out Hostess lest we have a creme-filled land of fat, diabetic Twinkies. More importantly, who’s behind the pension shortfall? How did the private equity owner’s debt pile-on affect the prior bankruptcy plan’s success? What about the distressed debt hedge funds? Job creators – minus 18,500 – indeed.

Posted by StuartG | Report as abusive

While Hostess Management blames the company’s demise on, what they claim to be, the greedy unions, and the public attributes their disaster to the overly consistent unchanging product line, or just merely to inevitable creative destruction…

The real question and concern causing toothaches across the globe is: when the economy crashes and the workers (who were promised a solid middle class lifestyle) find themselves left behind, where do they find economic salvation ? Or in the end is it just the Big Boss Execs’ who have a golden ticket out of the mess, while the rest are left to race to the empty market shelves?

Posted by sofiamog7 | Report as abusive

So what did the unionized bakers at Hostess make per hour? And what was the offer they rejected? And how much do “normal” (non-union) bakers make?

And can anyone live on that?

In all the coverage for the past few days I only saw one data point, from a receiving clerk in Kansas. His annual pay in 2005: $48,000. Pretty good in Kansas. In 2011: $34,000. So a 29 percent reduction in pay over four years. And the offer on the table when the strike started? $25,000.

Now, you could make the argument that paying a clerk–and I don’t know exactly what a receiving clerk does, but whatever–$23 an hour is just folly. Why, that’s a home-owner’s wage! You could almost save up for your kid’s college on that kind of pay.

But at $25,000 annually, your clerk is hurtin’, even in Kansas.

He becomes a “taker.”

It’s almost ironic, isn’t it?

Posted by Eericsonjr | Report as abusive

Hi Felix–Here’s another useful link for your readers: A petition on to nominate Neil Barofsky for Chairman of the SEC.

Posted by Moopheus | Report as abusive