Twinkies - and 18000 jobs - fall victim to union-management dispute; Update: Teamsters throw bakers union under the bus?

Hooked on Ho-Hos?  Find Ding-Dongs delectable?  Were Twinkies an indelible (if particularly edible) part of your childhood?  Be prepared to consign them all and many other junk-food delicacies to nostalgia.  Hostess, which has made these sugary staples for years, announced this morning that they will liquidate their business and end production after failing to negotiate new labor contracts with several unions.  Along with these confections, 18,000 jobs will also disappear:

“We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike,” said Gregory F. Rayburn, chief executive officer. “Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders.”

About one-third of the company’s workers are union members who are unhappy about the company’s cutbacks during its bankruptcy reorganization.

But problems with several unions — including the Bakery, Confectionery, and Tobacco workers and the Grain Millers International Union — have prevented the company from moving forward. Hostess said it will seek bankruptcy court permission to sell all of its assets. The company said bakery production has already shut down.

Without much more data than this, it’s impossible to say whether the unions or the company has been unreasonable in this dispute, or whether it might be a blend of both, as is usually the case. Sugary snacks like the kind Hostess produces have fallen out of political favor, certainly, but I doubt that sales have dropped dramatically. They have been a ubiquitous presence in supermarkets, convenience stores, and kid’s lunch bags since before I was a child, and in moderation don’t do any harm to anyone who is otherwise healthy.

Those aren’t the only places where Hostess-brand snacks have impacted the culture, either. Twinkies have especially captured the cultural imagination, and in one notable case, the legal imagination.  When Dan White stood trial for the 1978 murders of Harvey Milk and George Moscone in San Francisco, his attorneys tried to argue that White had a diminished capacity to form an intent to murder, thanks to depression that became intensified by consumption of large amounts of sugary snacks.  The media dubbed this the “Twinkie Defense,” and it proved successful, as White only got a seven-year sentence.  California eliminated its diminished-capacity defense shortly afterward.

On a more fun note, we’ll always have this scene from Ghostbusters:

That used to be a big Twinkie.  Perhaps all sides can take one last deep breath and try working together to save 18,000 jobs rather than see an American institution disappear, along with a lot of livelihoods.

Update: I updated the headline to highlight the jobs as well as the Twinkies.  Also, the jobs lost were nationwide, not in Texas, so I deleted that reference.

Update II: Like I said, I haven’t paid much attention to this fight, so I don’t have a lot of insight into whether labor or management has been more unreasonable.  However, the Teamsters’ web site seems to lay the blame on the Bakery, Confectionary, Tobacco and Grain Millers International Union (BCTGM) for refusing to go along with the Teamsters to accept the last offer from Hostess:

In fact, when Hostess attempted to throw out its collective bargaining agreement with the Teamsters in court, the Teamsters fought back and won, ensuring that Hostess could not unilaterally make changes to working conditions during the several months’ long legal process that recently ended. Teamster Hostess members were allowed to decide their fate by voting on the final offer conducted by a secret mail ballot.  More than two-thirds of Hostess Teamsters members voted with 53 percent voting to approve the final offer.

The BCTGM chose a different path, as is their prerogative, to not substantively look for a solution or engage in the process. BCTGM members were told there were better solutions than the final offer, although Judge Drain stated in his decision in bankruptcy court that no such solutions exist. Without complete information, BCTGM members voted by voice votes in union halls. The BCTGM reported that over 90 percent rejected the final offer and three of its units ratified the final offer.

On Friday, Nov. 9, the BCTGM began to strike at some Hostess production facilities without notice to the Teamsters despite assurances they would not proceed with job actions without contacting the Teamsters Union. This unannounced action put Teamster members in the difficult position of facing picket lines without knowing their right to honor such a line without being disciplined.

As is our longstanding tradition, Teamster members by and large are honoring Bakery Worker picket lines when encountered and complying with their contractual obligations when not encountering picket lines. The BCTGM leaders are putting Teamster members in a horrible position – asking them to support a strike that will put them out of a job when they haven’t even asked all their members to go on strike.

That strike is now on the verge of forcing the company to liquidate – it is difficult for Teamster members to believe that is what the BCTGM Hostess members ultimately wanted to accomplish when they went out on strike. We may never know unless the BCTGM members, based on the facts they know today, get to determine their fate in a secret ballot vote. Teamster members would understand that the will of the BCTGM Hostess membership was truly heard if that was the case.

That’s a pretty remarkable statement from the Teamsters.

Update (MKH): Just a little background. There’s a lot going on, here, though the bakers union strike was certainly the last straw for Hostess. The company has been in bankruptcy twice in the last decade, and as Allahpundit notes, the culture of organics and calorie-counting was working against them.

But the bakers union deserved to get thrown under the bus by the Teamsters because it looks like they threw the Teamsters under the bus, first. The Teamsters and the bakers worked together to come to a deal with Hostess in September. The bakers were quiet during negotiations, and apparently pulled a surprise move when they rejected the deal.

Hostess, which also owns Ding Dongs, Ho Hos, Wonder Bread and other celebrated baked goods, has been in Chapter 11 since January, its second such filing in a decade. The key parties have been two major hedge funds and two big unions, and they’ve been fighting over wages and pensions. Hostess contends givebacks are needed for the company to emerge from bankruptcy. The unions respond they’ve given up enough. Last month, Hostess made what it said was its “last, best offer.” CEO Greg Rayburn told Fortune that union rejection would result in the company immediately filing to liquidate—and putting thousands of employees out of work. Union members were faced with a Hobson’s choice: accept drastic concession or lose their jobs.

Late last Friday the largest unions—the Teamsters—announced that by a narrow vote, 53.6% to 46.4%, its Hostess rank-and-file had approved the new collective bargaining agreement. (Out of 7,900 Teamsters voting at the company, slightly more than half cast votes). Rayburn and Teamsters leadership both offered up measured words about the “difficult” decision.

But shortly thereafter, word came that the 7,000 employees of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union had rejected Hostess’ proposal. (No details of the vote were announced, though some press reports suggested there were only voice votes at locals rather than a written mail tally.) Though the leader of the bakers’ union in recent weeks had excoriated the proposal, the rejection was nonetheless curious. That’s because the bakers’ union had been quiescent for months in bankruptcy court, letting the Teamsters engage Hostess management and the hedge funds over the company’s demands to restructure by scuttling existing labor agreements.

This is what the deal looked like. It sounds like the Teamsters really did make sacrifices, and many of them were crossing the bakers’ picket line to keep the company functioning:

The proposed new labor deal consists of an immediate 8% wage cut and work rules more favorable to the company. Employer contributions for health insurance would decrease 17%. Hostess contributions to multi-employer pension plans would cease until 2015, at which point the current required level of funding would plummet from $100 million to $25 million. According to Rayburn, the proposal has been endorsed by Hostess’s key secured lenders, which are led by hedge funds Silver Point Capital and Monarch Alternative Capital. One estimate put cost savings for Hostess in the neighborhood of $200 million.

For their part, the unions would receive two seats on a restructured nine-member board of directors and 25% of equity. That would make the unions part of Hostess’ capital structure for the first time.

Maybe they can still come to some deal. I’m guessing after the company’s previous threats to shut down, the bakers might have thought they were bluffing. The deal the Teamsters took was painful, but it’s because the company was truly in dire straits. The roughly 6,000 bakers are really handing a raw deal to 12,000 of their colleagues. And, barring that, the brand is still worth money. It won’t immediately help those who will lose their jobs in this dispute, but Twinkies may be back owned by someone new, their labor obligations vacated, and likely in a right-to-work state.