Bain would slash costs, jettison workers, reposition product lines, and merge its new companies with other firms. With luck, they'd be able to dump the firm in a few years for millions more than they'd paid for it.
But the beauty of Romney's thesis was that it really didn't matter if the company succeeded. Because he was yanking out cash early and often, he would profit even if his targets collapsed.Bankruptcy court documents reveal Hostess executives had the cheek to disparage Teamsters' sacrifices. Hostess workers have already taken $240 million in cuts and have agreed to nearly $1.1 billion more:
The Company's theme is that bargaining unit employees and their unions have never made sacrifices and are the cause of all Hostess's difficulties. The Company appears to be on an ideological mission to take more than it needs, withdraw from multi-employer plans, terminate all retiree health insurance, ignore its employees' legitimate concerns about equality of sacrifice and the Company's future, and essentially offer nothing in return...Well, actually they didn't offer nothing -- they offered to yank out cash for themselves in the form of raises and bonuses.
...the Debtors also moved for an order "confirming" their ability to "perform and honor their obligations" to 550 non-insiders in accordance with their Variable Pay Plans (code for "bonuses)...When the Vikings did it, we called it looting and pillaging.
The court documents also show that Hostess executives lied about the reasons for withdrawing from the pension plan:
The Company's demand that it be permitted to withdraw from the (multi-employer pension plan) is based on the contention that unless it is able to do so, it will not be able to attract investment. But the evidence is...that credible investors have expressed a willingness to evaluate an investment without demanding withdrawal.Hostess would have lost money even had it made zero contributions to the pension plan. Testimony by Harry Wilson, chairman of a turnaround firm, explains how mismanagement sent Hostess into bankruptcy:
Hostess' financial challenges are a result of a number of problems, largely of its own making -- years of underinvestment in products, facilities and equipment; long-term neglect of once-dominant brands; a hollowing--out of a distribution system that once provided a competitive advantage only a few short years ago when Hostess was the largest baking business in the US; a failure to innovate and develop compelling products in newer, higher-growth product segments, leaving them dangerously over-represented in the declining legacy segments; management missteps and a Board that allowed these mistakes to continue for far too long; a failure to compete effectively to acquire niche products and expand its product offering to improve its competitive position; and a grossly overleveraged capital structure imposed in the first Chapter 11 case.There's more:
...the Company has not had a meaningfully successful new product introduction since it emerged from Chapter 11.Management didn't even have the brains to raise prices when commodity prices went up:
...when its competitors raised bread prices by 7-12% in the first half of 2011, Hostess' net pricing was said to have only increased by 1%.They lost money because they undercharged customers:
We have received numerous reports from Teamster RSRs of significant miscommunications with customers on pricing, including a series of under-pricing errors at 7-11, a large and important customer, which resulted in lost revenue.They can't even keep track of their product:
Anecdotal evidence from various regional Teamster leaders ... suggest ... a complete lack of controls and an inability to track product rigorously, resulting in significant waste and loss.Wilson found a long list of problems with management:
...poor systems, poor employee relations; a challenged culture...And in the true spirit of Bain Capital, Hostess got so deeply in debt that it couldn't automate its bakeries or replace its ancient fleet of trucks.
There's way more, but we'll save that for another day.