SUBSCRIBE

Breaking News on Industrial Baking & Snacks

Big Brands > Hostess Brands

Hostess Brands: Bosses deserve $1.75m in bonuses… if they meet tough targets for asset sale

By Elaine WATSON , 04-Dec-2012
Last updated on 05-Dec-2012 at 18:10 GMT

The $1.75m in bonuses to be shared by bosses at Hostess Brands should they meet targets relating to the sell-off of its assets are “below market rates” and “completely routine”, says the now-defunct maker of Twinkies and Ding Dongs.

A spokesman for Hostess was speaking to FoodNavigator-USA after the National Consumers League (NCL) expressed outrage at the news that Hostess bosses are in line for $1.8m in bonuses, despite the fact that the company is closing down with the loss of 18,500 jobs.

Hostess: Bosses will only get bonuses if they meet very challenging targets

His comments came two weeks after the baker sought US Bankruptcy Court approval to wind down the company following a disabling strike by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM).

He said: “It’s incorrect to say bosses will get $1.8m in bonuses. They will get $1.75m shared between 19 senior managers only if they meet very challenging targets designed to lower the cost and duration of the liquidation.

"If they are successful in meeting those targets, there will be greater returns to Hostess's stakeholders, including, potentially, the company's pension fund.

“The lenders are paying out this money and they fully support the decision to award the bonuses, which were also approved by the court.”

We have had inquiries from people interested in buying significant chunks of the business

Meanwhile, interest in brands and assets has been “robust”, he added, noting that Hostess has received inquiries from 110 parties since November 21, 70 of which have signed confidentiality agreements enabling them to conduct due diligence.

He said: “At our most recent count, we’ve had interest from 110 different entities, from small regional bakeries to supermarkets and very large players, plus foreign companies interested in setting up licensing deals.

“We haven’t had anyone step forward interested in buying the entire company but we have had inquiries from people interested in buying significant chunks of the business.”

The deadline for letters of interest is December 10, he said, adding that 3,200 staff are still working for the company to keep facilities secure and make plants ready for a sale.

National Consumers League ‘stunned’ by news of bonuses

However, Sally Greenberg, executive director of the NCL, said she was "stunned to learn that Hostess executives are awarding themselves bonuses totaling $1.8 million in the wake of management’s decision to close down the beloved and iconic Hostess brand of products and lay off 18,000+ workers.”

She added: “This company has been notoriously mismanaged for years, yet management has scapegoated Hostess employees instead of taking responsibility for their own incompetence. Their behavior boggles the mind.

“We at NCL are not alone in our outrage. We call upon the judge who authorized the bonuses to reconsider this disgraceful decision."

It is unknown what will happen to unpaid vendor invoices

In a letter updating suppliers on where the closure leaves them, Hostess said any orders in process are ”cancelled immediately” and that it is “unknown at this time what will happen to unpaid vendor invoices or whether sufficient funds will be ultimately made available for payment”.

In a letter to customers, it said it expects that all of its brands including Hostess, Dolly Madison, Drake’s, Wonder, Nature’s Pride, Butternut, Merita, Home Pride, Colombo, Millbrook and Beefsteak, will be sold.

'Outrageously unfair offer'

Hostess CEO Gregory Rayburn: 'Inflated cost structure put the company at a profound competitive disadvantage'

Hostess - which first filed for bankruptcy in 2004 - filed for Chapter 11 bankruptcy protection in mid-January 2012, citing pension and medical benefit obligations, restrictive work rules and tough trading conditions, and immediately began pursuing new collective bargaining agreements with union employees.

While the Teamsters union, which represents several thousand Hostess’ employees, accepted the company’s final offer, the BCTGM rejected it by a 92% margin, dismissing it as “outrageously unfair”.

But Hostess said it was not willing to put another offer on the table and filed a motion with the bankruptcy court in White Plains, New York, to impose the same changes ratified by the Teamsters on employees represented by the BCTGM.

Hostess: Inflated cost structure put the company at a profound competitive disadvantage

Following the deal, which was approved by U.S. Bankruptcy Judge Robert D. Drain, the BCTGM called a national strike at Hostess, shortly after which company bosses moved to liquidate the company.

In a statement issued after securing approval from the Bankruptcy Court to wind down its business, Hostess said the move “was necessitated by an inflated cost structure that put the company at a profound competitive disadvantage”.

It added: “Hostess Brands worked tirelessly to complete a reorganization of its business as a going concern. 

“However, the BCTGM leadership chose not to negotiate a new labor contract and instead, when presented with a final offer, launched a campaign to cripple the Company’s operations and force it to liquidate.”

Baker’s union: Management refused to invest in modernizing its bakeries

However, the BCTGM rejects this narrative and argues that poor management is to blame for company’s problems, and fell behind rivals in every capacity from R&D to acquisitions.

The union's president Frank Hurt said: “Hostess failed because its six management teams over the last eight years were unable to make it a profitable, successful business enterprise. Despite a commitment from the company after the first bankruptcy that the resources derived from the workers’ concessions would be plowed back into the company, this never materialized.

“Management refused to invest in modernizing its bakeries or devote necessary resources to advertising and marketing, product development and new technology.”

In a document submitted to the court, the BCTGM added: "Throughout the negotiations, both prior to and after the chapter 11 filing, the company rejected every BCTGM effort to persuade it to engage in a real restructuring that would bring fairness to the workforce and produce at least a reasonable possibility of long term success."

Parties interested in parts of Hostess's portfolio may include Grupo Bimbo, Flowers Foods and Metropoulos & Co, a private equity group specializing in food investment, say analysts.

Key Industry Events

 

Access all events listing

Our events, Events from partners...

Live Supplier Webinars

Using Barley to Formulate Healthy Food Products
Alberta Barley Commission

On demand Supplier Webinars

Raising the Bar: Ingredients, Claims and Increasing Consumer Appeal
Almond Board of California
All supplier webinars