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    Hostess Brands: Liquidation

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    Answer questions regarding case.
    1)Was the leadership of Hostess Brands to blame for the demise of the company? why or why not?
    2)What roe did the unions play in the ultimate liquidation of Hostess Brands?
    3)Private equity firms and hedge funds are being singled out in this case. Was their conduct unethical ? Why or why not?
    4) What could have been done differently by the ownership and management of Hostess Brands?
    5) Was there a long term future for Hostess Brands ? why or why not?
    6) What do you think will happen now?

    © BrainMass Inc. brainmass.com September 27, 2022, 5:52 pm ad1c9bdddf
    https://brainmass.com/business/business-law/hostess-brands-liquidation-625794

    SOLUTION This solution is FREE courtesy of BrainMass!

    In compliance with BrainMass rules this is not a hand in ready paper but is only guidance.

    1. The leadership of Hostess Brands cannot avoid responsibility for the demise of the company. Specifically CEO Brian Driscoll and his predecessors were responsible for the demise of Hostess Brands. The failure of HB has been primarily attributed to legacy pension, medical benefit obligations, and slow growth in revenues from products. The leadership of Hostess Brands was responsible for negotiating and entering into agreements with unions over time that increased its pension costs, benefit costs, and labor costs to such an extent that the business became unprofitable. During the 2004 bankruptcy, chief executive Tony Alvarez was fully responsible for not turning the company around and making it profitable. In 2009 when Interstate Bakeries emerged from bankruptcy, Craig Jung negotiated a new agreement with the unionized workers that was not very different from earlier agreements. There was a clause for equity in the company. However, the leadership of Hostess Brands did not negotiate an agreement that could rescue the company from problem of high costs. The leadership has failed to reduce worker related costs, it has failed to improve its products, and it has failed to finance its expansion plans. The result is that the products of Hostess Brands have been outcompeted by foreign brands. The main reason for failure is high labor costs, union activity, and costly pension plans. In addition, Hostess Brands leadership did not step into the healthy food segment that was growing fast. Instead it persisted in the "unhealthy" foods segment. Overall, the leadership failed in personnel management, financial management, product development, and marketing.
    2. The unions played a very important role in the ultimate liquidation of Hostess Brands. Before bankruptcy, the management and The Teamsters reached an agreement that could have saved Hostess Brands, but the Bakery, Confectionery, Tobacco Workers, and Grain Millers International Union refused to join. According to observers the behavior of the union was unacceptable and suicidal. The fact was that the labor cost structure was far too high. The owners offered a 25% ownership in the business, representation to the union on the board of directors, and $100 million of company issued debt that would be repaid in future. In return the workers would have to take additional wage and pension reductions. The Teamsters which was the biggest union agreed. The smaller union Bakery, Confectionery, Tobacco Workers, and Grain Millers International Union disagreed. It asked employees to strike and the result was that 18,500 workers' jobs were thrown into disarray.
    3. Private equity funds and hedge funds actually tried to save Hostess Brands during the bankruptcy years. A private equity fund made an investment during the bankruptcy years becoming the new owner but without union support, the company could not be turned around. Hedge funds tried to save Hostess Brands by buying up the distressed debt and injecting large amounts of money but with uncompetitive labor costs it was impossible to turn Hostess Brands around. The equity fund and hedge funds brought in new CEOs and new management teams but in face of high labor costs they could not turn the company around.
    4. The ownership and management of Hostess Brands should have re-negotiated agreements with the unions early. If they failed to reach an agreement, they should have moved the manufacturing facilities of Hostess Brands to Mexico. This would have reduced labor costs and made the firm competitive. Also, the owners should have modified the product line and introduced more healthy, natural, and organic products to increase their revenues and profits.
    5. Long terms future for Hostess Brands was bright. The products should have been modified from "unhealthy" calorie laden products to low calorie healthy products. There is a growing market for natural and organic products. The brand "Hostess Brands" could have been repositioned as a "healthy brand". From this perspective there was a long term future for Hostess Brands. There are several brands whose products have evolved with the changes in the needs of consumers and Hostess Brands could have continued for a very long time.
    6. The inevitable will occur now. Hostess Brands will go into liquidation and its assets will be sold off and its creditors will be paid under the supervision of the US Bankruptcy Court for the Southern District of New York in White Plains. The brand names The Hostess and Dolly Madison were also sold. The brands will be used by some other company to sell their products. From the perspective of workers they will lose their jobs. The unions will be held responsible for the liquidation of another business. The strike at Hostess Brands was unwarranted.

    References:
    1. Kaplan, David A. "Hostess is bankrupt... again." Fortune, July 26 (2012).
    2. Fearon, Ethelind. The Reluctant Hostess. Random House, 2015.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com September 27, 2022, 5:52 pm ad1c9bdddf>
    https://brainmass.com/business/business-law/hostess-brands-liquidation-625794

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