Friday, February 3, 2012

Let Them Eat Cake... Or Not


Urban legend has it that Twinkies have a shelf life of decades: not only do they contain no actual food, but one ingredient is the same chemical used in embalming fluid. Even though this claim is probably bogus, all you Hostess junkies (and you know who you are) might want to start hoarding your supplies. In what has become a tried and true tactic of vulture capitalism, the private equity firm that bought out Hostess several years ago, and already forced it into bankruptcy once, is at it again. Wonder Bread, that miracle of unhealthy enzyme-enhanced sculptable softness beloved by kids, is in danger too.  Either the worker bees cave, or Hostess may shut down for good.

It seems that the debt-riddled owners (they have been predatory, many, and varied) sloppily forgot to eviscerate the union's pension plan last time around, and are heading back into court to force the Twinkie-transporting Teamsters and the factory food workers  to give up their contracts. Hostess executives from the Texas HQ went judge-shopping, and finally settled on a friendly New York bankruptcy court.

The judge with the reputation for coercing concessions from unions in bankruptcies to make the capitalist vultures happy and whole is one Robert D. Drain. I am not kidding. This guy is a living legend in the world of legal union-busting for fun and profit. Writes labor journalist Robert Vail:
Between 2005 and 2009 Drain presided over the infamous Delphi auto parts bankruptcy, in which the United Auto Workers saw its Delphi membership decimated.
More recently, he has been overseeing the case of the A&P supermarket chain. Just six weeks ago, about 30,000 grocery clerks and store employees represented by the United Food & Commercial Workers union were forced into broad concessions under circumstances just like those faced by the Hostess workers.
The workers are being asked to give up $659 million in wages and benefits over three years, in addition to relinquishing their pensions.  All for the good of the bottom line, of course. Management will apparently try to appeal to the employees' sense of junk food junkie grass-roots solidarity and job security. They might even stir up anti-union sentiment by threatening to raise the price of SnoBalls to $5 for the already-struggling indigent middle class. Divide and conquer -- works every time.


The union boss is not having it. He represents the Bakery, Confectionery, Tobacco Workers and Grain Millers union. (Not to editorialize or anything, but the combo of Twinkies and cigs doesn't exactly inspire sympathy. On the other hand, it is pretty cruel and irresponsible for a company whose products contribute mightily to America's bloated health care costs to cut the medical benefits of its own employees. I call this the WWDBA-- the WalMart Way of Doing Business in America). Anyway, the union boss's name is Frank Hurt, and he is mightily pained:  
I find it deeply offensive and highly disingenuous for the company to claim that its financial woes are the result of its union contracts and pension and health benefits obligations. We contend that the company is in dire financial shape because of a string of failed business decisions made by a series of ineffective executives who have been running the company for the past decade.
For a junk food company, you'd think they'd know better than to indulge in that no-no of snacking: the double-dip. It previously filed for Chapter 11 in 2004, when it was known as Interstate Bakeries. The company also named a new chief executive, James R. Elsessor, who had taken over as CEO for Charles Sullivan,  replaced by Tony Alvarez. Confused yet? Mitt Romney, amazingly enough, is nowhere to be found in this labyrinth, but that doesn't mean he's not lurking nearby. Interstate Bakery's stock, which had been at one time $34/share, fell to $2.05/share as they declared bankruptcy.
At the time it was the longest bankruptcy in U.S. history. During that time, it fought a 2007 bid from Mexican baked goods giant Grupo Bimbo and ex-Bill Clinton vulture capitalist pal Ron Burkle of the Yucapaipa Companies. With the leadership of Craig Jung, the company emerged from bankruptcy as a private company on February 3, 2009.  The plan included a 50 percent equity stake by Ripplewood Holdings and lines/loans by General Electric Capital and GE Capital Markets, Silver Point Finance and Monarch Master Funding. Interstate's union workers made contract concessions in exchange for equity. Since declaring bankruptcy in 2009, Interstate closed nine of its 54 bakeries and more than 300 outlet stores. It also reduced its work force from 32,000 to 22,000 people and pulled out of some markets. (Wikipedia).
The next trial in New York's Southern District Bankruptcy court is scheduled for next month.

While you're waiting, do read the wonderful Charles Pierce's "In Defense of Twinkies", a masterpiece of junk food gourmandism and caloric history. An excerpt: 
   The Twinkie's formidable shelf life has aroused curiosity among bored undergraduates, the scientific community, and people who are, well, members of both. Most seriously, the Twinkie was subjected to a grim series of experiments eight years ago by a pair of young scientists at Rice University in Houston. They tested Twinkies for artificial intelligence (the cakes failed), electric resistivity (the filling bubbled a little, but that was all), and gravitational response, in which test a Twinkie was launched from a sixth-floor window, with the result that, upon contact with the sidewalk, only a small crack opened on the Twinkie's side. The pair also performed a solubility test, immersing a Twinkie in a glass of tap water. After 24 hours, they reported "the beginnings of a creamy ooze at the surface of the water."
     "After 48 hours in the water," they continued, "the Twinkie had not changed any more in size. However, the creamy filling somehow oozed out of the center and was collecting on the surface of the water. The water itself was a very dark brown. When we attempted to pour the water out of the cup, it quickly became apparent that the Twinkie had no structural integrity at all. It ... turned into a lump of goo in the sink."
     Pity. You should probably eat them if you're going to do anything with them. Or not. 

Okay, I think it's time for a Twinkie run. Watch out for vulture capitalists scarfing up the supplies in the snack aisles, and attack if you must. I won't tell if you don't.  

8 comments:

Denis Neville said...

Did not know much about the Twinkie (loved them as a child) until the recent story of their bankruptcy and this from Karen.

I’m more familiar (up close and personal) with vulture capitalism and health care.

The nursing home industry can be a case study of how the private equity industry operates.

Read about the shameful behavior of private equity owners of nursing homes, “At Many Homes, More Profit and Less Nursing,” cutting expenses and staff, sometimes below minimum legal requirements.

http://www.nytimes.com/2007/09/23/ business/23nursing.html

At nursing homes owned by private equity firms, residents fared more poorly than residents of other nursing homes according to data collected by the Centers for Medicare and Medicaid Services. The typical private equity nursing home scored worse than national rates in 12 of 14 indicators that regulators use to track ailments of long-term residents. Before being acquired by private equity firms, many of those homes had scored at or above national averages.

Accountability has also been thwarted by private equity corporations, who have made it very difficult to file lawsuits and for regulatory agencies to levy fines, which create complex corporate structures that obscure who controls their nursing homes and insulate them from the problems they create.

http://www.nytimes.com/interactive/2007/09/22
/business /20070923_NURSING_GRAPHIC.html#

Vulture capitalists like to complain that legal and regulatory costs kill business. For them, it’s clearly cheaper to kill people instead.

4Runner said...

Looks like the workers are out a lot of dough they knead and the union is toast, any way you slice it.

Denis Neville said...

“The 'Bankruptcy Card' now belongs completely to corporations, just like their ‘Get-Out-of-Jail-Free Card.’ – Thomas Geoghegan

Bankruptcy, the tried and true tactic of vulture capitalism…

What happens when a vulture capitalist decides to declare bankruptcy?

The vulture capitalist walks into court as a creditor and emerges as a debtor. The “debtor” venture capitalist then walks away with enormous amounts of cash because he is really just a subsidiary of a firm that is doing quite well, thank you.

According to Thomas Geoghegan, “They aren’t really bankrupt. That’s the first thing. It’s just that these firms set up subsidiary corporations that go into Chapter 11 and get, quote, "reorganized." It’s very easy to shed unsecured obligations. And virtually all uninsured, non-insured PBGC pension obligations and all healthcare obligations and other supplemental benefits that people earn over a lifetime are completely unsecured and are the first thing to go in a reorganization.”

“Congress liberalized the Business Bankruptcy Laws to the point where when a business goes bankrupt today; this amounts to taking a brief shower that allows them to shed all of their most painful obligations while retaining all their assets. In other words; Bankruptcy for Businesses is the exact opposite of what happens to individuals, when they are forced into personal Bankruptcy. It is this form of bankruptcy that awaits almost every major corporation that still has labor contracts or social obligations to their employees, such as retirement accounts, or medical guarantees. So when you hear about how dire things will be if one or more of our major industries is about to be forced into bankruptcy, you might want to run it through this simple lense-before deciding as to ‘what will be lost.’”
- Thomas Geoghegan, “Infinite debt: How unlimited interest rates destroyed the economy”

http://harpers.org/archive/2009/04/0082450

So the “debt-riddled” Hostess owners sloppily forgot to eviscerate the union's pension plan last time around, and are heading back into court to force the Twinkie-transporting Teamsters and the factory food workers to give up their contracts. Hostess Brands, Inc., filed for bankruptcy under Chapter 11, after filing a previous bankruptcy as Interstate Bakeries Corporation in 2004, and emerging as Hostess Brands from that Chapter 11 in February 2009, seeking federal bankruptcy relief from its largest creditors, labor unions and employee pensions, specifically, payments to worker pensions and medical benefits.

Thus, vulture capitalists use the devices of subsidiaries and corporations; entering and existing Chapter 11; or just liquidating their subsidiary corporations and creating new and different frameworks, in order to shed all their obligations. Alternatively, they may just close down and go out of business and put their money into speculative financing.

Who was it that famously said, “I like being able to fire people who provide services to me.”

And it pays quite well.

Jay - Ottawa said...

The Best Insurance

The Ravens of London Tower
If that place they ever flee
It will portend the end
Of the British monarchy.

And the Barbary Macaques of Gibraltar
On the Rock where they trade their fleas
Provide firm guarantee of the Brits' toehold
On that half of the Pillars of Hercules.

So bid not this Republic farewell
O Incorruptible Hostess Twinkie
Grant us thy wondrous staying power
In this, the hour of our insolvency.

Will said...

@4Runner,
I can always count on you to bring the funny. Thanks!

P.S. Way too many amazing Stones songs to pick an all-time fave, but my fave today is "Loving Cup." :)

Denis Neville said...

Welfare for financial engineering’s creative destructionists

Much of the talk about private equity focuses on layoffs and destruction of companies. There is not much said about how laws and regulations structure the way private equity and buyouts occur.

“People coming to the defense of private equity from both the left-neoliberal and conservative spaces directly invoke or allude to “the market” as a natural, already existing thing. But a key progressive retort to this laissez-faire view of economics argues that all markets are deeply embedded in and constructed through legal, tax, and other regulatory government codes.”

http://rortybomb.wordpress.com/2012/01/12/an-interview-with-josh-kosman-on-the-embeddedness-of-private-equity-in-the-tax-code/

“An Interview with Josh Kosman on the Embeddedness of Private Equity in the Tax Code,” Rortybomb asks Kosman, author of The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy, to explain how his research “has found that, far from being natural, private equity exists largely due to issues with the tax code.”

The business model is based on a capital structure and tax arbitrage.

Taxpayers are subsidizing the private equity takeovers in the form of tax benefits. Money is transferred from taxpayers to the vulture capitalist. The One Percent’s welfare!

http://www.kingofbain.com/

Valerie said...

I think we need some kind of system where there can be class action suits against the management who make these bad decisions and hold them responsible for the long term damage they do to pensions and to the company in general. These people should have their fortunes taken away from them and the proceeds (if that is the correct word) divided among those who have lost everything due to their poor leadership. I realise it won’t be much once it is all divided but these CEO’s should have to live in the humble circumstances their employees are having to endure thanks to their poor management decisions.

I realise this isn’t a likely scenario considering our government has done exactly the same thing. It is as David Stockman said on Bill Moyers. These CEO’s are not made to take the REAL consequences of their bad decisions so they (and others seeing them get away with it) turn around and do the same thing over and over again. Someone else – someone with less power and connections – is made to pay the price for their careless risks. Privatise the profits, socialise the losses.

Neil said...

I’m not a finance expert, but could a "poison pill" or other tactic be used to save worker’s jobs from the vulture capitalists?

http://www.cbsnews.com/8301-505125_162-51215585/what-is-a-poison-pill/

Otherwise the example presented here, like so many others, suggest the increasing futility of working for a living, and planning for the future by way of a pension plan.

For older people, their lot is already cast. For those with children, they can expect a life of increased uncertainty and no political harbor with the Democrats.