Hostess Brands has return to chapter 11 bankruptcy. Hostess is a privately held company that sold numerous sweet treats which include the famous Twinkies, Drake’s snack cakes, and Wonder’s Pride bread. Just yesterday, the company filed for bankruptcy after three years of coming from a restructuring. Although, the company’s net revenue is about $2.5 billion on May 28, 2011, the net loss was posted to be $341 million. Now Hostess is struggling with their $860 million and higher expenses. In the court documents, Hostess states that the burdensome debt and labor cost, along with the weak economy, are some of the reasons they filed for bankruptcy. Hostess has 100,000 creditors, which are composed mainly from labor unions and pension funds that represent the employees of the company. Around 80% of the employees belong to 12 separate unions which include particularly: International Brotherhood of Teamsters, Confectionery, and Grain Millers International Union. Hostess has stated that the pension, medical benefits, and “restrictive work rules” are cutting into the profit. They add that in May 28, 2011 they paid around $52 million in employees’ compensation claims.
The company wants to reach an agreement that will allow them to change the labor contracts so that they can get out of bankruptcy and provide secure jobs to their employees. If unable to reach an agreement, Hostess will have to ask the court to stop the existing agreement.
Twinkies lovers do not need to worry about no more Twinkies because even though the company filed for bankruptcy, they are still not disrupting the sale of the baked goods. A group of lenders, Silver Point Finance, has secured the financing of the bankruptcy of up to $75 million which will permit the company to continue operating its bakeries.
“With generations of loyal consumers, numerous iconic products and a talented and experienced work force, Hostess Brands has tremendous inherent strengths to build upon,” Mr. Driscoll [company’s president and chief executive] said.
This is not the first time Hostess has filed for bankruptcy. In 2004, the company filed for bankruptcy because of the rising labor cost and fluctuating prices of their ingredients. The management has wanted cuts, but they never made a deal with the unions. Now the company seeks to obtain new capital investment so that they can update their production and remove the multi-employer pension plans.
2 comments:
I'm not sure whether or not Hostess should be filing for bankruptcy. It sounds like the company is still gaining a major profit even though they do have a large cost. If they have a total net revenue of 2.5 billion dollars, and it costs 860 million a year to fund the company, they are still continuing to make a significant profit. I get the feeling that Hostess is only declaring bankruptcy because they want to be able to change the contracts that they have with their employees. Also, if this is the case, it seems as though it will be fairly unsuccessful for them.
I believe that Hostess isn't bluffing this time. Seeing as they already were coming off of three years of "restructuring."
It seems as if their business model was not in tune with our modern and changing economy.
Perhaps it was the information that Hostess's financial future showed little hope and it might be better to quit while they were ahead.
The main thing that we need to recognize is that even though they are "bankrupt," Hostess's bankruptcy will actually have little effect on the consumer. Thou shan't be worried.
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