The worker pensions are the creamy center. (Evan-Amos)
Venerable snack cake maker Hostess has filed for bankruptcy less than three years after emerging from its first bankruptcy in 2009. The company, and therefore the news accounts, will tell you that Hostess is struggling because of union contracts! and worker pensions! But, uh, does this make you sit up and wonder if that's exactly the truth?
Hostess, which is owned by private-equity firm Ripplewood Holdings, struggled to meet interest payments as its investors sought concessions from employees of the Irving, Tx., -based company.
Now where oh where have we heard about how private equity firms buy companies, run up debt on the company's behalf to be sure the private equity firm gets paid, all the while laying workers off and stripping their pensions? Locust capitalism, anyone? Private equity firms and hedge funds have their hand in the Hostess pot oven, and they say the workers' pension fund is the problem. To today's business press, enough said, even though we know there's a business model that produces results exactly like this.
Frank Hurt, the president of one of the unions representing Hostess workers explains that when Hostess executives claim to owe their pension nearly $1 billion, what they mean is that it would cost them that much as a withdrawal liability to get out of their existing multi-employer pension. The Washington Post, to its credit, notes that the company would have lost money over the past three years even if it had no pension obligations to its workers. Hostess workers make $18 to $19 an hour, including pension costs, according to Hurt. They have accepted wage freezes and stuck by the company as it struggled. But to a private equity-owned company, they're just one more expense to be squeezed for profit, and blaming workers is always a safe narrative to sell to the media. Maybe Hostess is owned by the one private equity firm trying to do the right thing, not placing short-term profit extraction over the long-term health of the company. But the odds are against it.