Hostess Brands Inc., the maker of Twinkies, Ding Dongs, and Wonder bread, is making a final offer to the Teamsters union Tuesday to accept cost-cutting efforts. If they refuse, Hostess will head to bankruptcy court to implement the cuts.
Hostess plans to reduce pension benefits, change work rules, and outsource delivery work to cut costs. If the International Brotherhood of Teamsters and the Bakery, Confectionery, Tobacco Workers unions reject the offer, Hostess will ask bankruptcy courts to suspend the unions' collective bargaining agreements, reported the Associated Press.
The Teamsters and the Bakery, Confectionery, Tobacco Workers represents three quarters of Hostess' 18,500 strong staff. Hostess has $1.9 billion in pension obligations to its employees. They have not made pension contributions since August.
As much as 50 cents of every dollar Hostess Brands contributes goes to pay for pensions for people who worked at other companies that no longer exist and who never worked at Hostess Brands, IBC or any other predecessor of [Hostess], the company said according to the New York Post. Unfortunately, we can no longer afford to carry the pension costs of former competitors who have long since closed their doors and disappeared.
Hostess and the unions can agree on one thing: a strike would destroy the company.
We would no longer have cash to keep operating, said Hostess management in a letter sent to employees on Monday. All Hostess Brands operations would shut down and liquidation would begin. The 18,500 jobs, plus the health insurance that comes with them, would be lost for good.
Hostess said the unions get the same pension and health insurance plan as the management, with 85 percent of the premiums paid for by the company. It's also opted to freeze worker's pay instead of pay cuts, reported CNN.
The Teamsters believe Hostess would rather have the company go into liquidation so it can recover some of its money. Yet Teamsters said they are willing to negotiate.
We put an offer on table with $150 million in concessions, said Ken Hall, the Teamsters' secretary-treasurer to CNN. There is not a chance our members would accept [the company's offer]. They won't work for nothing.
Yet Teamsters said Hostess management has to sacrifice more because if there is no shared sacrifice and no equality of sacrifice, then there's no deal, said Teamsters General President Jimmy Hoffa to CNN.
Some 91 percent of Teamsters want to strike, though a date will only be set after a court decision. The hearing is expected to last two days.
We want to at least put into that judge's mind ... that perhaps throwing out the contract is not going to save the company, Hall said.
Hostess' spends less money on labor costs then Entenmann's baked goods and Thomas' English Muffins. Hall said Hostess' labor costs are $400 per driver. But Hall said that wasn't the issue here.
This is not about employees and labor costs, this is about poor management, said Hall.
CEO of Hostess Gregory F. Rayburn said the high labor costs and pension obligations led to the company's downfall, not America's interest in healthier diets, as previously reported. Consumers are looking to healthier alternatives, like yogurt, to snack on. White bread's popularity has decreased to 36 percent in 2011 because consumers prefer wheat.
If that were the case and that was sort of the downfall, there wouldn't be any chocolate companies out there either, he said to the Associated Press. There's a market for Twinkies and Ho Hos and Ding Dongs.
Both unions have vowed to strike if the judge agrees with Hostess management to cut labor costs.
Hostess filed for Chapter 11 bankruptcy in January for the second time in a decade.