Since June of 2010, I have communicated extensively in writing with your local unions regarding the very serious financial difficulties of your employer, Hostess Brands. Many of my communications should have been posted on Union bulletin boards at your work location so that you were kept continually informed. Additionally, we held a meeting in Washington, D.C. on February 25, 2012, for all Hostess production locals. Both I and Secretary-Treasurer/Director of Organization David Durkee, have personally spoken with every local union principal officer many times, in an effort to keep locals updated.
Prior to the 2004 Hostess bankruptcy, BCTGM members employed by Hostess gave extensive concessions to the company to ensure their financial success. As we know, the value of your concessions was squandered by management and the numerous CEO’s who have controlled the fate of Hostess.
During 2011, I personally called Ripplewood Holdings (the private equity firm that held the majority equity value in Hostess and managed the company) and asked its top official if Hostess was experiencing financial problems. The response from Ripplewood was absolutely not, finances of the company were perfectly fine.
Within a few months, Hostess management began to demand huge concessions from BCTGM members — concessions so deep that I felt our members would go from being a part of the middle class to near poverty levels. The concessions also stated that Hostess could close six to ten bakeries; however, the company refuses to disclose which bakeries would be affected.
We engaged one of the top financial consultants in the country to review all of Hostess’ financial records so our Union could ascertain the true state of affairs and put the BCTGM in a position to negotiate responsibly, armed with the true facts.
Additionally, the BCTGM International retains one of the nation’s top bankruptcy law firms in an attempt to protect our members from the draconian bankruptcy laws that only serve to protect the banks, investors, corporations and management, but not America’s working families.
As you know, Hostess management unilaterally stopped payments to the B&C Pension Fund in July of 2011. The company did this without discussions with the BCTGM International Union, the BCTGM Local Unions or the B&C Pension Fund. The pension payments, which you earned, amount to approximately $4,000,000 per month. Hostess’ failure to remit these payments to the B&C Pension Fund has created measurable damage to the Pension Fund.
The new Hostess CEO Greg Rayburn stated in a May 2, 2012 Q&A letter that, “We (Hostess) decided we simply want our union members to participate in financially sound pension plans as opposed to severely underfunded pension plans.” Notice that Rayburn does not specifically mention the B&C Pension Fund. This is because the B&C Pension Fund was a financially sound, multiemployer pension plan (having a green rating, the highest financial rating possible under the Federal Pension Protection Act). According to Rayburn’s own reasoning, Hostess should have continued in the B&C Pension Fund.
The BCTGM International Union was engaged in discussions for approximately six months, but no acceptable deal was consummated for your consideration prior to Hostess’ January 11, 2012 bankruptcy filing.
During six months of discussions, our Union demanded three things before we could consider any of the company’s concessionary proposals: (1) an airtight successor clause so that if any assets were sold, union contracts would remain intact with the new owner; (2) BCTGM members employed by Hostess would receive something of economic substance in exchange for any concessions the company might grant, if the company would eventually return to financial health; and, (3) any deal that would eventually bring Hostess out of bankruptcy could not contain an unhealthy amount of debt, because too much debt would push Hostess into bankruptcy for a third time and would cause yet a third round of concessionary bargaining. Unfortunately, as of today, Hostess has failed to agree to any of these proposals, which are extremely vital to your employment future.
In all pre-bankruptcy and post bankruptcy discussions, the company representative repeatedly stated that the financial investors of Hostess, the management and the union and non-union workers would have to make shared sacrifices (concessions) if Hostess were to have a chance of coming out of bankruptcy. However, such statements were disingenuous. The BCTGM was informed (via the Unsecured Creditor Committee) that the Hostess CEO was awarded a 300% raise (from approximately $750,000 to $2,550,000) prior to the January 11, 2012 bankruptcy filing. Additionally, at least nine additional top executives also received incredible raises ranging from 35% to 80%. For example, one such executive received a pay increase from $500,000 to $900,000. The chief negotiator for Hostess received a pay increase from $375,000 to $656,256.
Federal law severely restricts “retention” bonuses that reward executives for staying with distressed companies. Hostess’ own compensation consultant stated, “Hostess should tie payments to company performance…” Hostess decided to “disregard” its consultant’s advice. In an April 9, 2012 letter to workers, new CEO Rayburn stated that, “those raises were the product of an assessment by our compensation committee and an independent compensation consulting firm.” As you may know, the former CEO and many of the executives, including the company’s chief negotiator, left Hostess after the salary increases were disclosed. While claims have been made that executives are now working for $1 per year, Hostess has not shared its individual executive compensation contracts with our Union.
As most of you know, when Hostess filed for bankruptcy on January 11, 2012, it also filed to have union contracts abrogated via a bankruptcy code 1113 procedure. The company’s strategy was to force a concessionary contract upon the members through the Bankruptcy Court. Our bankruptcy law firm advised the BCTGM International that to participate in the trial portion of the 1113 procedure would cost the members millions of dollars and that in the end our Union would lose the trial, due to the imbalance in the present federal bankruptcy laws. Rather than participate and become a victim of the 1113 trial, the BCTGM International decided the best strategy was to control the process, which we feel we have been very successful in doing thus far. For example, the BCTGM has won a motion in court to exclude all Hostess contracts that had already expired prior to the Federal Bankruptcy Judge making a decision on Hostess’ request to abrogate your contract(s). The battle in court to find out what exactly the Hostess Executives were doing with their pay was another significant step in discovering the true intentions of Hostess management.
Also, while the Federal Bankruptcy Court allowed our B&C Pension Fund to be representatives on the Unsecured Creditors Committee, they refused a seat for the BCTGM International Union. Our bankruptcy law firm has helped the BCTGM win a seat on this committee so we can represent our members properly throughout the process.
On April 18th, the Federal Bankruptcy Judge granted Hostess’ 1113 motion, however, he did not abrogate the BCTGM contracts; instead the Judge gave Hostess permission and the discretion to abrogate. If Hostess abrogates BCTGM contracts, we will be free to strike.
During the last several months, all of our BCTGM Local Unions with Hostess contracts have taken strike votes from the membership. Many have prepared picket line duty sheets, selected picket captains and prepared strike signs. Thirty-three BCTGM production bakeries have authorized a strike if needed. I congratulate all of you on this effort!
I have listened very carefully to our members who work at Hostess and the consensus is that union members are not willing make concessions that gut BCTGM contracts or take away their voice in the workplace. Union members are not willing to give up pensions. They want the company to return all wages used to purchase additional pension to the members via wages; union members will not give up retiree health insurance (W-1 Plan(s) & P-Plans); union members will not pay more for health insurance for a lesser plan; nor will union members give up overtime or work week guarantees.
The vast majority of our members employed by Hostess has lost all faith in management and the company and do not believe the company has a viable future. I have also been told that our members believe concessions from them will only be used to increase the value of Hostess so it can be sold to other parties that will load the company with debt, once again requiring future concessions.
If Hostess abrogates our contracts and our members are forced to take action, and Hostess goes off the market, we believe the production assets will be purchased by competitor companies. If a simple majority of the workforce is retained, the new employer is required by law to negotiate a first contract. Many of our Hostess members feel this is a better option than agreeing to Hostess’ 1113 concessions.
The BCTGM International Union will continue to do it’s very best to represent members and attempt to negotiate a contract which is acceptable.
Sincerely and fraternally,
Frank Hurt, International President
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