Behind the financial maneuvering at Hostess • Hacker News Board

Re: Behind the financial maneuvering at Hostess

#21

Post by harryh » Mon, Dec 12, 2016, 12:38 AM UTC

owyn wrote: post #16

yummyfajitas wrote: post #13

Earlier quoted context omitted.

As an alternative, perhaps Hostess could have paid their employees with $10/hour worth of equity and no cash. Would that have made you happier? I suspect the workers would not have liked it. They preferred cash to illiquid equity in a questionable company, and received it.

That's not a realistic choice, so it's not a compelling argument. The workers in this case don't "prefer" cash, it is the only option. However, if there was a basic income in this country, I think workers in a situation could indeed make that choice. If it was $10 basic wage + $10 equity OR + $10 wage now there's something to discuss because that's a more interesting trade off. (((edit to clarify based on comments: y…

If we're talking about a basic income for just working aged Americans (because kids don't need it and the elderly are already covered by other programs) we're talking about roughly 200M people.

200M * 2000/hours per year * $10 hour = 4 trillion dollars a year.

For comparisons sake the current federal budget is about 3.8T.

Re: Behind the financial maneuvering at Hostess

#22

Post by jdavis703 » Mon, Dec 12, 2016, 1:57 AM UTC

jjoonathan wrote: post #3

owyn wrote: post #2

So this investment group managed to find value in a company which previous managers had not, that's fine. But they also captured all the rewards, which none of the actual workers could do. 2.3 billion divided by 1200 is about 2 million per worker, yet they make $10 per hour. While this is legal, it seems wrong. There are plenty of frameworks (stock options, employee ownership, unions etc) that would have accomplished…

> only in the tech industry is it assumed that the people doing the work deserve some of the rewards That's only because the supply/demand situation of tech laborers gives us bargaining power at the moment. It won't last forever.

Even non techies get large stock option grants, while an outlier the chef at Google made millions when they IPO'ed. At other places I've worked writers, designers, HR, tech support etc have all gotten options. Is this not typical?

Re: Behind the financial maneuvering at Hostess

#23

Post by Retric » Mon, Dec 12, 2016, 2:11 AM UTC

hendzen wrote: post #20

Retric wrote: post #19

Earlier quoted context omitted.

If the owners want to realize those future cash flows they can sell. Leverage unlike sale forces otherwise healthy companies into bankruptcy. The advantage is you can leverage more than the value of a company and then extract it without selling. PS: Remember you can profit from preforming a useful economic function, or fraud making profit a poor yardstick for anything else.

If you truly believe this leverage will force the company in to bankruptcy, you should short Hostess stock (TWNK). It's currently trading at ~$12.50 per share. Furthermore, if you believe it is possible to save a distressed company like Hostess and generate superior returns without dividend recapitalization, perhaps you should start a competing private equity firm.

I am keeping an eye on them and considering put options. I am expecting a peak and crash within five years, but timing these things is risky.

Re: Behind the financial maneuvering at Hostess

#24

Post by owyn » Mon, Dec 12, 2016, 2:21 AM UTC

harryh wrote: post #21

owyn wrote: post #16

Earlier quoted context omitted.

That's not a realistic choice, so it's not a compelling argument. The workers in this case don't "prefer" cash, it is the only option. However, if there was a basic income in this country, I think workers in a situation could indeed make that choice. If it was $10 basic wage + $10 equity OR + $10 wage now there's something to discuss because that's a more interesting trade off. (((edit to clarify based on comments: y…

If we're talking about a basic income for just working aged Americans (because kids don't need it and the elderly are already covered by other programs) we're talking about roughly 200M people. 200M * 2000/hours per year * $10 hour = 4 trillion dollars a year. For comparisons sake the current federal budget is about 3.8T.

I picked the $10 value for UBI at random (well, because that was the wage in the article). I should have probably thought about it a bit more. As you point out, it's a bit expensive. Maybe we could pay for it by mining diamond asteroids, who knows?

A more reasonable assumption might be $5 UBI + $10 wages = the proposed $15/hr affordable living wage.

And yeah, you'd pretty much have to tax the rich and the corporations more and stop spending so much on the military to get there. But money was invented by people, I feel like generally more of it should be in the hands of the average citizen. Sure, I want a Scrooge McDuck money vault as much as anyone, but I will argue that wealth inequalities around the globe cause real harm, and a bit more wage/equity/reward flexibility in the way corporations pay non-tech workers might be an improvement.

Re: Behind the financial maneuvering at Hostess

#25

Post by msandford » Mon, Dec 12, 2016, 2:56 AM UTC

Retric wrote: post #23

hendzen wrote: post #20

Earlier quoted context omitted.

If you truly believe this leverage will force the company in to bankruptcy, you should short Hostess stock (TWNK). It's currently trading at ~$12.50 per share. Furthermore, if you believe it is possible to save a distressed company like Hostess and generate superior returns without dividend recapitalization, perhaps you should start a competing private equity firm.

I am keeping an eye on them and considering put options. I am expecting a peak and crash within five years, but timing these things is risky.

The market can act irrationally longer than you can stay solvent. Put options are "safer" than shorting but they cost more.

Re: Behind the financial maneuvering at Hostess

#26

Post by nommm-nommm » Mon, Dec 12, 2016, 3:40 AM UTC

harryh wrote: post #14

anarazel wrote: post #12

Earlier quoted context omitted.

Well, in Germany (I've had a business there before moving to the US, that's why I know some about it), you're free to milk "your" company, but if you end up going into bankruptcy you'll likely be hold at least partially liable to the money you took out of the company, even if it's some form of limited liability company. So essentially, yes, to the banks. Not if all works out, but in the cases it doesn't. To my knowle…

Banks in the US are free to demand personal liability that goes beyond the company if they feel the risk demands it. Of course, it's a free market, so if some banks are willing to make the loan without doing that they'll probably win the business instead.

Banks readily issue small business credit cards backed by personal assets.

Re: Behind the financial maneuvering at Hostess

#27

Post by nommm-nommm » Mon, Dec 12, 2016, 3:46 AM UTC

owyn wrote: post #2

So this investment group managed to find value in a company which previous managers had not, that's fine. But they also captured all the rewards, which none of the actual workers could do. 2.3 billion divided by 1200 is about 2 million per worker, yet they make $10 per hour. While this is legal, it seems wrong. There are plenty of frameworks (stock options, employee ownership, unions etc) that would have accomplished…

>it seems like only in the tech industry is it assumed that the people doing the work deserve some of the rewards.

https://www.nceo.org/articles/employee-ownership-100

That's the largest employee owned companies in America. There's a disproportionate number of grocery stores.

Re: Behind the financial maneuvering at Hostess

#28

Post by mjevans » Mon, Dec 12, 2016, 6:53 AM UTC

I'm going to use just 'back of napkin' numbers to make the outcomes easier to compare and for each I'll round in ways that I assume (but might be wrong about) being more fair.

  800,000,000 : Top investment firm guy
  200,000,000 : Some random high investment firm guy?
  ___,_50,000 : Lets call this 'middle class' in a small town
  ___,_20,000 : Hourly worker: $10 / hour * 40 hours * 50 weeks

Is it really possible for any person to be worth 10000 or more times some random other person? That disparity is ludicrous and in my opinion practically slavery.

Re: Behind the financial maneuvering at Hostess

#29

Post by throwaway76543 » Mon, Dec 12, 2016, 7:45 AM UTC

mjevans wrote: post #28

I'm going to use just 'back of napkin' numbers to make the outcomes easier to compare and for each I'll round in ways that I assume (but might be wrong about) being more fair. 800,000,000 : Top investment firm guy 200,000,000 : Some random high investment firm guy? ___,_50,000 : Lets call this 'middle class' in a small town ___,_20,000 : Hourly worker: $10 / hour * 40 hours * 50 weeks Is it really possible for any pe…

How many $10 hour workers without a financial education do you need to hire to effectively handle investments?

Re: Behind the financial maneuvering at Hostess

#30

Post by lambertsimnel » Mon, Dec 12, 2016, 9:32 AM UTC

Retric wrote: post #19

hendzen wrote: post #9

Earlier quoted context omitted.

They are the owners of the company. The leverage is just a technique to move future cashflows in to the present so they can pay their investors and move on to the next company. Would it be better to just allow the company to go completely out of business?

If the owners want to realize those future cash flows they can sell. Leverage unlike sale forces otherwise healthy companies into bankruptcy. The advantage is you can leverage more than the value of a company and then extract it without selling. PS: Remember you can profit from preforming a useful economic function, or fraud making profit a poor yardstick for anything else.

While I'm familiar with the idea that healthy companies can be so leveraged for quick profits that they go out of business, I don't understand the mechanism. Is the idea that such over-leveraged companies cease to be otherwise healthy before they go out of business? If so, why? Is the management worse while they are over-leveraged? Is it a matter of market conditions worsening?

Why would an otherwise healthy company be liquidated if it couldn't service its debt? Wouldn't lenders rather sell the company as a profitable going concern than accept what's left after liquidating it? A reasonable valuation for a genuinely healthy company would be greater than book value.

I'm also confused about the practice of backs selling repossessed buy-to-let homes during a crash, evicting tenants in the process. Why sell low, rather than continue to collect the rent?