Friday Editorial – 23rd November 2012
Ay Caramba!
By Meghan Sapp
Thanksgiving is one of those wholesome, All
American traditions that lies at the foundation of
the nation’s culture. It’s right up there with 4th of
July parades, community BBQs, hot dog stands,
Uncle Sam, presidential elections and Twinkies.
But thanks to a whole host of very American
ideals—like unions, vulture capitalists and market
protection—the parent company of Twinkies, HoHos, Snoballs and other household names that
bring to mind a youth well spent is going into
liquidation. There’s little doubt that many of those
brands will go on to survive under the loving arm
of other companies, but there’s a lot of questions
around the why it all fell apart and the who will
take them over.
Depending on what one reads, there were three
main culprits in the demise of Hostess Brands.
The company itself is choosing to point the finger
at the bakery union’s resistance to further cuts in
wages and benefits, after having done the same
thing back in 2007 when Hostess went through
bankruptcy last time. The Wall Street Journal
outlined Hostess's 372 collective-bargaining
agreements requiring the company to maintain 80
different health and benefit plans, 40 pension
plans and a mandated US$31 million increase in
wages and health care and other benefits for 2012,
along with a whole host of bizarre required work
practices that made doing business simply
inefficient.
The union, which incidentally is the same one
who has been unsuccessfully negotiating with
American Crystal Sugars for well over a year (and
since the Hostess shutdown is now back at the
negotiating table with ACS), is of course refusing
to take the blame and is instead pointing the finger
at poor management. First it was poor
management that led to the 2007 bankruptcy and
then it was further poor management by the
vulture capitalists who “rescued” the company but
basically dragged it into the gutter. There are even
reports that the CEO received a tripling of his
salary this year.
© Sugaronline, 2012
Then there are those who are pointing the finger at
the US sugar market and the Farm Bill’s sugar
program for keeping prices too high for the
company to be successful. For anyone who’s ever
taken a bite out of a Hostess product, there’s no
doubt that it’s mostly sugar and air held together
by some chemicals and water, but since the
liquidation none of the company’s financials are
available except by pay-for-use services who
know that they can make a killing on whoever
wants to know the details of what is now on
offer—making it impossible to know exactly how
much was spent on sugar anyway.
Those who are blaming the sugar program point
to other examples of major sugar users who’ve
left the US in search for cheaper sugar. They point
to Kraft and Hershey who went to Canada and to
candy makers Brach's and Fannie May who went
to Mexico, taking their jobs with them. Hostess
laid off all of its 18,500 employees last week and
many are waiting to see who buys the different
brands and where those corresponding jobs will
go. For the sugar users who have spent much of
this year in Washington lobbying to destroy the
sugar program, there is no more opportune time to
leverage their point and drive it home.
There are several American companies who are
said to be exploring the purchase of one or several
Hostess brands, such as Flowers Food, the
company behind Nature’s Own, as well as Little
Debbie baker McKee Foods and even ConAgra. If
any of those companies were to succeed, it would
probably be safe to assume that Hostess’s failing
was indeed in mismanagement or the way it dealt
with its unions.
But the potential suitor for some or all of the
brands that is getting the most attention is
Mexico’s Grupo Bimbo, the largest baker in the
world. The company already tried to buy out
Hostess during the 2007 bankruptcy but pulled
out, and it appears there may have been interest
earlier in the decade. Bimbo already bought out
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23rd November 2012
Sugaronline Friday Editorial
parts of Sara Lee last year, but not all of it
because of anti-trust issues.
Those who are backing Bimbo as the lead suitor
are pointing to the company’s access to cheap
Mexican sugar and the company’s extremely
healthy balance sheet as the key factors to why
Bimbo may come out as the winner. Though sugar
in Mexico continues to be cheaper than the US,
the new dynamics that exist with NAFTA might
not necessarily mean that Bimbo could get cheap
sugar into the US. It does own US-based
manufacturing as a result of previous acquisitions,
but if Hostess failed because of high sugar prices,
Bimbo would need cheap sugar. That could mean
that in order to take advantage of the Mexico/US
sugar arbitrage, production would have to move to
Bimbo’s production facility in Mexicali, Mexico
and take along all of those jobs with it.
purchase of just a few brands, or what kinds of
“yes, but” clauses might be attached to any sort of
approval, but there’s little doubt that those are the
kinds of discussions going on right now in
Washington while everyone is busy digesting
their turkey and pumpkin pie.
The average American populace does not have a
favourable worldview when it comes to Mexico or
Mexicans. The country is for holiday destinations
like Mazatlan or Cancun, their food is pretty well
loved throughout the US in varying levels of
authenticity, but Mexicans are basically seen as
the lowest of the lower class. A Mexican company
taking over something as all around American as
the Twinkie or the Ho-Ho would be almost
unfathomable—this coming from the public who
shops at Walmart because they believe those oh
so cheap prices are coming from goods Made in
the USA.
Not that any of these impressions are rational, but
they are a factor. Already the internet is scathing
with racism and hurling accusations of stealing
American jobs and sending them “south of the
border” if Bimbo were to finally take over. It’s a
good deal for Bimbo—they had offered more than
a half million dollars back in 2007 but analysts
now say that the company is only worth US$135
million at best.
Racism and NAFTA sugar dynamics aside, it’s
possible that the discussion is entirely moot. The
US Dept. of Justice wouldn’t allow Bimbo to buy
all of Sara Lee because of monopoly concerns so
threw up the anti-trust flag. Considering Bimbo’s
already leading position in the US market, let
alone all the way to the tip of South America, the
DOJ would likely not approve it buying up
Hostess. It’s unclear if it would allow the
© Sugaronline, 2012
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