First Pizza Hut, Now Twinkies maker Hostess laying off people

Dish Network announced that it was pulling Blockbuster out as a competitor to Netflick - it's just going to be a dying brand in the rental store market. So no, it does not have a future. Worldcom wasn't killed by accounting - it was killed long before that because it couldn't compete against the other players and cooked it's books to hide that.

Your knowledge of business is pretty suspect. To even argue that Hostess was a good investment for the unions shows a complete lack of business acumen.

 

Of course, if the unions went in and found the company was insolvent, $800 MM in debt and not creditworthy, OP and the Foxtrash would have the blamed "union ownership" for bankrupting such a "fine" company.

 

Worldcom was brought down by cooking the books. To assume WorldCom would have failed on its own is jumping to conclusions. They weren't cooking the books to hide a failing company. They were cooking the books to keep the stock price high, even as we were going through an economic downturn.

 

forget ownership. the choice was about keeping a job at a lower salary vs no job with the prospect of getting a similar job at the lower salary being difficult at best.

 

Blockbuster is still offered as a benefit to being a Dish subscriber. Also, they are looking at developing streaming of live TV. So...Blockbuster may indeed have a future. It appears that Dish Network is refocusing the company. Also, juicystream nailed it on Worldcom.

Whether or not Hostess would be a good investment depends on many factors. What does the Chapter 11 plan provide for in terms of how much of their debt would be discharged and who would be paid in the plan, when, and how much? What are the terms of any DIP financing, and how much is the balance? Upon emergence from the plan, would the reduced pension costs and wage costs allow the company to be profitable on a cash flow basis?

All of this also assumes that Hostess could obtain approval of the disclosure statement, whether ballots had been cast by creditors on the plan and whether they could obtain confirmation of the Chapter 11 plan. Also, you can't just look at the amount of debt. How much of that debt is secured debt and how much of that debt could be modified in the Chapter 11 plan? Chapter 11 plans are very complex creatures that fundamentally change the amount required monthly for debt service...hence the term reorganization.

To assail my business acumen without the answers to all of these questions is simply folly. What has become clear is that you do not understand how a Chapter 11 works. Most people don't. Hostess being a good investment for the unions obviously isn't that cut and dry since, as Major pointed out, the Teamsters approved their ownership offer.

It could be that the bakers union simply dug their heels in on wage and pension concessions...all else be damned. I don't know this to be true, but it certainly is possible.

 

No, that is a common fallacy. Worldcom cooked the books because because it was hemorrhaging money and was 41 billion dollars in debt due to a very poor product and rapidly declining margins due to the overcapacity of telecom pipeline.

it's the 41 billion in debt that took worldcom down, not the 4 billion in hiding expenses. The account scandal was down to delay the inevitable, it was not the root cause.

You guys talk like experts but you don't know the facts.

 

Not folly, but based on a lack of demonstration of the simple facts I am pointing out.

No, it's not about debt, it's about whether a company has any realistic shot at being profitable in the future. Blockbuster has not been profitable in a long time and won't be profitable - it's no longer an independent company, it's not even a c-corp anymore. Worldcomm had no shot - not because of the scandal but because it was losing money like crazy long before.

And hostess is a company waiting to die - it has been for the last 10 years. It's been on life support and it's economics get worse every year. It doesn't take a genius to realize that you aren't going to get a return on your investment.

The Teamsters might have made a mistake - their taking of that deal does not mean Hostess had a future. My original point is I would not take a cut in compensation in exchange for equity when in all likelihood I would lose a lot on that. I guess the Teamsters felt it worth the risk and the Bakers Union did not. I think the Bakers Union made a smart choice in turning that down.

No matter how your finance or restructure that company, it is doomed to fail.

 

Why is that? What is it that's inherent to Hostess and different from other baked goods companies that makes them impossible to restructure?

 

Good question.

 

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Sounds like Romney may have consulted with some of these kids when developing his campaign strategy...

 

It's brand is no longer relevant and it's pass attempts at reviving it have all failed miserably.

It's a dead brand. It's a dead product. The cost of repositioning itself it already too high in an already hyper-competitive niches. An investor would be better served putting their money in another company in growth categories rather than one is a dying one.

It's like investing in RIM. Sure you can do it. They might make a comeback. But who here wants to buy their stock? Raise your hand?

Sometimes it's time for a company to cease existence. And this is one of those times.

 

Worldcom went into bankruptcy, reorganized, continued to operate, and was purchased by Verizon just 4 years later for nearly $7 billion. They are the worst example to use of a company that couldn't be fixed or wouldn't be worth unions taking a stake in.

 

Sounds like bad management - something that can be fixed by ... replacing management.

They have annual sales of well over $2 billion. It's neither a dead brand, nor a dead product. Selling the brands is part of what will generate substantial value for them in the liquidation process.

Except the unions wouldn't be asked to make an investment - they would just be given a stake. A steady but not-growing brand still has value as long it's cash-flow positive. RIM's problems are completely different than Hostess in that theirs isn't a cash flow thing that can be improved by bankruptcy.

The question is not whether Hostess is going to be some high-flying growth company. It's is whether, with changes to its underlying debt and labor costs and management practices, the company can be profitable. If so, the company has value, and thus the unions would get some of that value in exchange for the reduced costs.

 

What you fail to mention is that all previous stock was wiped out and canceled since the money went to pay creditors, making all stock 100% totally worthless - this happened AFTER it emerged from bankruptcy.

So you are saying unions should have taken stock during bankruptcy which would end up being worth zero despite getting the company out of bankruptcy????

Nice.

 

The equity portion of the company becomes worthless when the company enters bankruptcy. Of course any stake they get would be in the post-bankruptcy company. That's the whole point of making the trade.

 

No, it's not a management issue - it's a brand problem. Management can not fix consumer trends with a product that is beyond reinvention. If you don't understand this, you don't understand it.

It is when it is simply unprofitable. It's not revenue that matters. It's profit. And $2 billion is a long decline from where it was before. This company is not AOL. It's not going to be able to parley it's brand loyalists into a completely different type of business.

This is not true. Unions are making an investment by taking less compensation. They are essentially paying for that stake. You can't say, hey - I will pay you 20% less and give you a stake in a company and claim that's a gift.

RIM has the exact same problem. Declining demand for it's products and services. RIM is actually in a better position as it could try to segway into a B2B type of company albeit much smaller one.

It can not be profitable - the fundamentals of its operations are not there. Declining sales are not a way to profitability. You aren't going to make Hostess compete in the health markets, and the overall confections industry is down as mom's make healthier choices and there is a ton of new competition as well.

The companies value is not in it's revenue stream, it's in it's assets. And it's the brand itself that is weighing the company down now as it is perceived in an unflattering light by consumers as junk food. Wonderbread is the poster child of unhealthy bread.

These brands are dinosaurs - I'd say to anyone - do not invest in these brands. And again, it is naive at best to suggest unions are getting stock for nothing.

 

This is one thing I wonder about Hostess is over the last ten years why haven't they been making major changes in their product line and marketing? Off the top of my head I can't name one new Hostess product since the 70's?

The brand still has a lot of recognition and it seems like they could've continued if they had made changes.

 

They have tried to change and introduce new products. They just didn't work because their core brand isn't twinkies - it's wonderbread - which doesn't sell anymore.

They made wonderbread wheat, and enriched, and all sorts of healthy versions - they all failed. They tried.

It's not the hostess brand that is flawed, it's their sub-brands that are in decline. The tried new brands too but those flopped.

At some point, you have to let go and fold shop.

 

There is no way you could possibly know that without doing a complete analysis of the financials, especially the statement of cash flows. You would then have to read the disclosure statement and Chapter 11 plan to determine which debt obligations would be modified or eliminated. You also would have to look at the terms of any debtor in possession financing. You would then have to make the adjustments to determine future cash flows.

I seriously doubt that you have read the disclosures and plan and made the projections. Don't worry, the disclosure statement or plan should have those projections conveniently attached for you.

 

As I have repeatedly said - they have a brand/market problem which is very fundamental.

I can understand that many people just think brands are silly things and that if you have a viable business you can just market it and it works. But it's far more complex than that.

Hostess/Twinkies, etc has high brand recognition and equity - but not enough to counter the financial challenges it faces.

I predict that Twinkies will live on in some manner, but that this might be the end of Wonderbread.

My knowledge of finance is limited to a undergraduated business courses and a few years at an iBank 20 years ago so I don't claim to be an expert - but my specialty is in brands and advertising which I know as well as anyone out there, and I have done an analysis of Wonderbread and the clear conclusion was it was a dying brand and would not survive past the next decade based on continuing erosion of it's core consumers. Minorities see Wonder-bread as not for them, wealthy people see it as unhealthy and beneath them - it has become the brand of poor uneducated whites. And ultimately, it's going to die.