Hostess: insider raises and a wage-cut standoff liquidated Twinkies at 18,500 jobs

Hostess Brands — Twinkies, Wonder Bread, Ding Dongs — still did about $2.5bn of business a year when it collapsed, though sales had been declining for years. It was the company's second insolvency: Interstate Bakeries had filed in 2004 in what became one of the longest bankruptcies in US history, emerging in 2009 with Ripplewood Holdings holding half the equity after unions conceded contract terms in exchange for stakes.

In 2012 the company imposed a contract cutting wages 8% and benefits 27-32%. The bakers' union, BCTGM, rejected it 92% to 4, and its 6,600 members struck nationwide. CEO Gregory Rayburn announced on 16 November that Hostess lacked "the financial resources to weather an extended nationwide strike," would lay off most of its 18,500 workers, and would sell its assets to the highest bidders. "The problem has always been the cost structure, the union rules, the pension legacy," he told ABC News.

The bankruptcy court turned hostile. Judge Robert Drain, who had "serious questions as to the logic behind this strike," forced mediation; the US Trustee, Tracy Hope Davis, demanded conversion to Chapter 7 and attacked plan provisions that would "grant bonuses to insiders" — Rayburn's own pay had tripled from $750,000 to roughly $2.5m during the bankruptcy, and nine other executives had received raises of up to $400,000. Drain cleared the closure on 21 November anyway, and the liquidation plan was finalized on 29 November.

18,500 workers laid off and the whole company sold piecemeal, with the cake brands fetching $410m against $2.5bn in annual sales.

The imposed cuts asked labour to fund the turnaround while executives took raises, so the union's members concluded the concessions would go to Wall Street investors, and 92% voted no.

Management bluffed with a strike threat it could not execute: it admitted it had no financial resources to survive an extended stoppage.

Coming out of the 2004-2009 bankruptcy the balance sheet had no cushion for a company whose sales were already declining year after year.

Insider enrichment during the case — a tripled CEO salary and nine executive raises — destroyed the credibility the plan needed in court and on the picket line.

A plan that asks workers to fund the turnaround while insiders pocket raises is a plan nobody will carry. If concessions flow to Wall Street, the strike you provoke becomes the liquidation you chose.

Mediation did not save the company; the judge approved liquidation and the auctions began. In January 2013 Apollo Global Management and C. Dean Metropoulos submitted a $410m offer for the cake brands, and other bidders circled the rest — Twinkies were back on shelves within months under new ownership, but most of the 18,500 jobs were gone. Shoppers had already stripped Twinkies from store shelves, some reselling boxes online at markups.