Fox Ignores Hostess' Array Of Troubles To Scapegoat Union For Liquidation

Fox News placed the blame for the planned liquidation of Hostess Brands squarely on a labor dispute with one of the company's unions. In fact, Hostess' unions had previously made significant concessions when the company went through a failed bankruptcy, and Hostess had many problems beyond labor costs, including an inability to adjust to changes in consumer tastes, which contributed to its bankruptcy.

Fox Blames Bakers Union For Hostess Liquidation

Fox News Anchors Blame The Union And A “Labor Dispute” For Putting “18,000 Jobs On The Line.” Martha MacCallum, co-host of Fox News' America's Newsroom, introduced a segment on the Hostess bankruptcy by saying the company is “blaming a worker's strike for crippling their ability to make and deliver their products.” At the end of the report, co-host Bill Hemmer blamed the coming job losses at the company on “a labor dispute,” suggesting that the union had put “18,000 jobs on the line.” MacCallum said the employees were “paying dues to the union and then the union won't make a deal.” [Fox News, America's Newsroom, 11/16/12]

But Hostess Was A Troubled Company That Had Recently Emerged From A Previous Bankruptcy

Reuters: Hostess Filed For Its First Bankruptcy In 2004. In March, Reuters reported that Hostess “filed for its first bankruptcy in 2004, citing declining sales, high food costs, excess capacity and worker benefit expenses.” [Reuters, 3/6/12]

Forbes: The Company Exited Bankruptcy In 2009. In July, Forbes reported that “Hostess was able to exit bankruptcy in 2009” because of an “equity infusion of $130 million” from a private equity firm, as well as “substantial concessions by the two big unions” and lenders that “agreed to say in the game rather than drive Hostess into liquidation.” [Forbes, 7/26/12]

Huffington Post: Hostess Re-Entered Bankruptcy In 2012. In January, The Huffington Post reported that “Hostess Brands is hoping to cut its high costs as it heads back into bankruptcy protection for the second time in less than a decade.” [The Huffington Post, 1/11/12]

Hostess' First Bankruptcy Was Expensive And Did Not Improve The Company's Prospects

Reuters: Hostess' Entered “First Bankruptcy With $648.5 Million In Debt, And Came Out With More Than $800 Million.” Reuters reported that after Hostess filed for its first bankruptcy in 2004, “it did not deal with its debt”:

It tackled some issues -- closing bakeries and simplifying some union contracts -- but it did not deal with its debt. It went into the first bankruptcy with $648.5 million in debt, and came out with more than $800 million, according to court documents. [Reuters, 3/6/12]

Reuters: Hostess “Spent More Than $170 Million On Professional Fees” In Its First Bankruptcy. Reuters further reported that in its first bankruptcy, Hostess spent more than $170 million on professional fees:

Each time a company goes bankrupt, it must pay for lawyers and advisers not only for itself, but for its major creditors. In its first bankruptcy, Hostess spent more than $170 million on professional fees, based on its monthly operating reports. [Reuters, 3/6/12]

NY Times: Hostess Entered Bankruptcy In 2012 With Debts And Liabilities That Exceeded Its Assets. In January, The New York Times' DealBook reported that Hostess had “more than $850 million of secured debt outstanding” as well as "$180 million in accrued workers compensation liabilities." The Times further reported that "[a]nother $50 million to $60 million is outstanding to trade creditors, plus $36 million in lease obligation" and that the company was “going to lay a $75 million debtor-in-possession loan on top of that.” The Times added that “all this from a company with assets of just over $980 million.” [The New York Times, Dealbook, 1/13/12]

Hostess Asked Unions For More Pay Cuts Despite “Substantial Concessions” In The Past

Forbes: Hostess Exited Bankruptcy Because Of “Substantial Concessions By The Two Big Unions.” Forbes explained that Hostess was able to exit bankruptcy in 2009 for three reasons, including that “substantial concessions” were made “by the two big unions” -- the Teamsters and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. Forbes further explained that “annual labor cost savings to the company were about $110 million” and that “thousands of union members lost their jobs.” [Forbes, 7/26/12]

Hostess Had Stopped Contributing To Pensions And Wanted To Cut Worker Pay Further. According to The Kansas City Star, union leaders reported that Hostess had stopped contributing to workers' pensions and wanted to cut wages and benefits “by 27 to 32 percent”:

The bakery workers union said the contract would cut wages and benefits by 27 to 32 percent, including an immediate 8 percent wage cut.


Union officials said the company stopped contributing to the workers' pensions last year, and 92 percent of union members voted to reject the contract in September. A bankruptcy court judge allowed the company to force the union to accept the new collective bargaining agreement.

“Hostess Brands is making a mockery of the labor relations system that has been in place for nearly 100 years,” said Frank Hurt, international president of the union. [The Kansas City Star, 11/12/12]

Hostess Raised Executive Salary By 35% To 80%. According to The Wall Street Journal, in April Hostess' creditors noted that Hostess had dramatically increased executive pay, including increasing CEO compensation from $750,000 to $2.25 million. According to the Journal, Hostess' creditors called the move “a possible effort to 'sidestep' Bankruptcy Code compensation programs”:

Last July, the court documents said, the compensation committee of Hostess's board approved an increase in then-chief executive Brian Driscoll's salary from to $2.55 million from around $750,000. The company had hired restructuring lawyers in March 2011, the creditors said, and filed for bankruptcy protection on Jan. 11.


Besides Mr. Driscoll, “other executives' salaries were increased by from 35% to 80%,” the creditors said. The documents said that Mr. Driscoll subsequently renounced a portion of the increase while “other executives did not appear to have done so.” Besides Mr. Driscoll, two other executives who saw their salaries increase have also left the company, according to the spokesman.[The Wall Street Journal, 4/4/12]

Hostess Had Many Problems Beyond Labor Costs

CNBC: After Bankruptcy Hostess' “Sales Declined And Attempts To Roll-Out New Products More In Line With Changing Consumer Tastes Flopped.” CNBC reported that the first round of bankruptcy “wasn't enough to save” Hostess, adding: “The company's sales declined and attempts to roll-out new products more in line with changing consumer tastes flopped.” [CNBC, 11/16/12]

Forbes: Hostess Has Had Six CEOs In A Decade. When CEO Greg Rayburn took over Hostess in March 2012, he became the sixth CEO of the company in a decade. [Forbes, 7/26/12]

Associated Press: “Hostess' Snacks Don't Neatly Fit Into The U.S. Trend Toward A Healthier Lifestyle.” In a report on the second bankruptcy, the Associated Press reported that “health-conscious Americans favor yogurt and energy bars over the dessert cakes and white bread they devoured 30 years ago.” AP further noted that “Hostess' snacks don't neatly fit into the U.S. trend toward a healthier lifestyle that includes a diet rich in whole wheat foods, fruits and vegetables.” [Associated Press, 1/11/12, via The Huffington Post]

Wash. Post: Hostess Has Been “Rife With ... Problems” Beyond Labor Issues, Including “Management's Failure To Freshen Up A Stale Product Line.” In January, The Washington Post reported that the “failure of the [Hostess] brand, for decades a staple of American kids' diets, is a parable, rife with the problems that have plagued some of the country's oldest and most famous brands -- a combination of pension burdens, labor rules, crippling debt from financial engineers and management's failure to freshen up a stale product line and keep up with consumers' changing tastes.” [The Washington Post, 1/11/12]

Wash. Post: January Bankruptcy Filing Shows Hostess “Would Have Lost Money Without Any Pension Costs At All.” The Washington Post reported in January that Hostess “lost $250 million in the less than three years since it emerged from its previous bankruptcy. That means it would have lost money without any pension costs at all.” The Post noted that Hostess “lost money in 30 of the past 37 quarters.” [The Washington Post, 1/11/12]

NY Times: Hostess “Does Not Have Much Of A Finance Department.” In a report on the second bankruptcy, The New York Times' DealBook noted that “something is a bit odd at Hostess.” The Times reported:

The issue here is the corporation itself. The first clue that something is a bit odd at Hostess comes from the company's description of its chief financial officer, whom we are told:

is responsible for driving the planned priorities of the finance organization in both the front and back office and regularly collaborates with the marketing, sales and operations departments.

Resist the temptation to mock the consulting-firm-speak (“driving the planned priorities?”), and ask yourself what's missing. Don't C.F.O.'s normally work closely with the treasury departments, too?

Turns out that Hostess has no treasury department. It apparently doesn't have anyone who can perform treasury functions at all.

The company has asked the bankruptcy court for permission to hire FTI Consulting to do the work. Apparently Hostess does not have much of a finance department either, since FTI is also providing employees for that department. [The New York Times, Dealbook, 1/13/12]