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Behind the financial maneuvering at Hostess

nytimes.com

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Re: Behind the financial maneuvering at Hostess

#11

Post by bunderbunder »

hackuser wrote: post #5
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…

A theory: The ability to capture the rewards depends to a large extent on political power within the organization (i.e. rather than merit and market value). Management has great political power, naturally; that's why in some organizations even failing managers get massive bonuses, golden parachutes, etc.. For workers to have power they need to organize themselves, and that is what unions are: Political power for work…

Yep. That's exactly why the idea of unions being necessary goes all the way back to the beginning of capitalist economic thinking. The first person to make a version of that observation was Adam Smith himself.

Re: Behind the financial maneuvering at Hostess

#12

Post by anarazel »

harryh wrote: post #8
anarazel wrote: post #7

I'm a bit confused to why leveraging up companies this badly, without commercial need, isn't a violation of fiduciary duty of company leadership. I'm pretty sure that it'd be in several countries, e.g. Germany. You might not get into trouble without a bankruptcy, but there were one, you'd likely be personally liable to some degree. EDIT: grammar

Fiduciary duty to who? The banks making the loans?

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 knowledge that's largely not the case in the US atm.

Re: Behind the financial maneuvering at Hostess

#13

Post by yummyfajitas »

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…

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.

Re: Behind the financial maneuvering at Hostess

#14

Post by harryh »

anarazel wrote: post #12
harryh wrote: post #8

Earlier quoted context omitted.

Fiduciary duty to who? The banks making the loans?

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.

Re: Behind the financial maneuvering at Hostess

#15

Post by diogenescynic »

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…

The same could be said about Walmart and the Waltons who do very little to help their employees or give back to society in any meaningful way.

Re: Behind the financial maneuvering at Hostess

#16

Post by owyn »

yummyfajitas wrote: post #13
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…

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: yes I meant a $10 basic income + either ( $10 equity or $10 wage )

I didn't even comment on the parts of the story that actually made me unhappy, which was the ridiculous debt financing deal, the blatant union crushing, skipping out on pension commitments, and ultimately laying off 90% of the original work force in order to "extract value" from a mediocre junk food company which is just going to end up in bankruptcy again when they're done with it.

Re: Behind the financial maneuvering at Hostess

#17

Post by poikniok »

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…

How is $10 basic wage + $10 equity vs + $10 wage a tradeoff? You seem to be missing the point.

Re: Behind the financial maneuvering at Hostess

#18

Post by Avshalom »

poikniok wrote: post #17
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…

How is $10 basic wage + $10 equity vs + $10 wage a tradeoff? You seem to be missing the point.

10+(10|10) not (10+10)|10

Re: Behind the financial maneuvering at Hostess

#19

Post by Retric »

hendzen wrote: post #9
anarazel wrote: post #7

I'm a bit confused to why leveraging up companies this badly, without commercial need, isn't a violation of fiduciary duty of company leadership. I'm pretty sure that it'd be in several countries, e.g. Germany. You might not get into trouble without a bankruptcy, but there were one, you'd likely be personally liable to some degree. EDIT: grammar

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.

Re: Behind the financial maneuvering at Hostess

#20

Post by hendzen »

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.

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.

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