The Hostess Liquidation: A Curious Cast Of Characters As The Twinkie Tumbles

Tyler Durden's picture




 

Perhaps one of the most interesting aspects of the just announced Hostess liquidation, one that will be largely debated and discussed in the media, or maybe not at all, is the curious cast of characters and the peculiar history of this particular bankruptcy. Some may not be aware that the company's Chapter 11 (or colloquially known as 22) bankruptcy filing this January, which today became a Chapter 7 liquidation, was the second one in the company's recent history, with Hostess, previously Interstate Bakeries, emerging from its previous protracted multi-year bankruptcy in 2009. What is curious is that its emergence had all the drama of a anti-Mitt Romney PAC funded thriller, with a PE firm, in this case Ripplewood holdings, injecting $130 million in order to obtain equity control of Hostess as it was emerging last time. There were also more hedge funds, investment banks, strategic buyers, politicians involved in this particular story than one can shake a deep fried numismatic value Twinkie at. More importantly, however, as America has been habituated following the last season of the reality TV show known as the presidential election, if Private Equity then "bad." Only this time there is a twist: because it wasn't really PE that was the pure evil in the Obama long-term campaign, it was associating PE with Republicans, and thus: with jobs outsourcing. And here comes the Hostess twist: because Tim Collins of Ripplewood, was a prominent Democrat, a position which allowed him to get involved in the first bankruptcy process in the first place, due to his proximity with the Teamsters' long-term heartthrob Dick Gephardt (whose consulting group just happens to also be an equity owner of Hostess). In other words, the traditional republican-cum-PE scapegoating strategy here will be a tough one to pull off since the narrative collapses when considering that it was a Democrat who rescued the firm, only to see it implode in a trainwreck that has resulted in the liquidation of a legendary brand, and 18,500 layoffs.

But it only gets better. Because the full cast of characters involved here is quite stunning, as David Kaplan summarized so well recently:

Ripplewood is run by Tim Collins, 55, who's been at the center of other famed PE transactions. Known as a brilliant capitalist-philanthropist-networker, he's an eclectic character: a Democrat in an industry of Republicans; an Adirondack enthusiast dreaded by pheasant and fish; a board member at the Yale divinity and business schools; and someone who took a year at 31 to work at a refugee camp in the Sudan. Ripplewood orchestrated the $1.1 billion turnaround in 2000 of the Long-Term Credit Bank of Japan, which marked the first time that foreign interests controlled a Japanese bank. (Collins made the cover of Fortune Asia for it.) The bank was renamed Shinsei, and in 2004 it had a lucrative initial public stock offering. Far less fortunately, in 2007 Ripplewood acquired Reader's Digest -- and saw its $275 million investment vanish in Reader's Digest's bankruptcy filing in 2009. (Collins reportedly had visions of merging Reader's Digest with the magazine division of Time Warner (TWX), which owns Fortune.)

 

Ripplewood's foray into Hostess was partly enabled by Collins's connections in the Democratic Party. He wanted to explore deals with union-involved companies and sought the help of former congressman Gephardt, who in 2005 founded the Gephardt Group, an Atlanta consulting firm that provides "labor advisory services." In his 2004 presidential bid, Gephardt -- whose father was a Teamsters milk truck driver -- was endorsed by 21 of the largest U.S. labor unions; in 2003, Collins was one of 19 "founding members" of Gephardt's New York State leadership committee. (Today, Ripplewood and Hostess are listed online as major clients of Gephardt's consulting group, which is also an equity owner of Hostess.) Back when Hostess was coming out of the first bankruptcy, Gephardt's credibility with both Ripplewood and the Teamsters gave them each a little more room to break bread.

 

During this first bankruptcy, Hostess was almost sold. In 2007 it warded off a $580 million bid from its biggest competitor, Bimbo Bakeries USA. Bimbo Bakeries USA is part of Grupo Bimbo, the Mexican baking giant that owns such brands as Sara Lee, Entenmann's, Freihofer's, Arnold, Boboli, Ball Park Buns, and Thomas' English Muffins. Joining Bimbo in the bid were the union-friendly investment arm of supermarket titan Ron Burkle and the Teamsters themselves.

 

Hostess was able to exit bankruptcy in 2009 for three reasons. The first was Ripplewood's equity infusion of $130 million in return for control of the company (it currently owns about two-thirds of the equity). The second reason: substantial concessions by the two big unions. Annual labor cost savings to the company were about $110 million; thousands of union members lost their jobs. The third reason: Lenders agreed to stay in the game rather than drive Hostess into liquidation and take whatever pieces were left. The key lenders were Silver Point and Monarch. Both are hedge funds that specialize in investing in distressed companies -- whether you call them saviors or vultures depends on whether you're getting fed or getting eaten.

 

Based in Greenwich, Conn., Silver Point was founded in 2002 and has approximately $6.5 billion under management; its two co-founders are 49-year-old Edward Mulé and 47-year-old Robert O'Shea, both former Goldman Sachs (GS) partners. Silver Point helped bail out Krispy Kreme Doughnuts, Delphi, CIT Group, and various TV stations. Monarch, based in Manhattan, was created in 2008 as a spinoff from the Quadrangle Group. It reportedly has more than $3 billion under management; among its three co-founders are 52-year-old Michael Weinstock and 48-yearold Andrew Herenstein, both formerly of Lazard. Monarch has invested in Eddie Bauer and the Texas Rangers. (In 2010, after Herenstein sent a letter to baseball teams warning them not to approve a sale of the Rangers "at a price below fair market value," the letter became public, and the Dallas Morning News ran this ominous blog headline: MONARCH ALTERNATIVE CAPITAL THREATENS BASEBALL.)

 

Silver Point and Monarch, along with about 20 other lenders, owned about $450 million of Hostess secured debt at the time of the bankruptcy filing in 2004, according to court records. Remarkably, though -- given that Hostess's financials are now supposed to be an open book in federal bankruptcy court -- it's unclear how much the lenders actually paid for those notes. But it's presumably less than face value. Opportunistic investors like Silver Point and Monarch commonly buy distressed debt at a considerable discount. Their strategy: Invest in fundamentally "good" companies that have "bad" capital structures brought about by overborrowing, bankruptcy, or other corporate stresses.

 

Neither the specific amount put up by each investor nor the percentage of the total debt is public record (In re Hostess Brands, Case No. 12-22052). So it's impossible to know for sure how much "skin in the game" the creditors have. But according to sources with knowledge of Hostess's debt structure, Silver Point owns about 30% of the debt; Monarch, also about 30%; and the other lenders combined own the remaining 40%. Clearly, it was Silver Point and Monarch, along with Ripplewood, that had the biggest bets going forward.

Confused yet? Here it is summarized in a schematic:

The rest of the story is your typical post-emergency NewCo gone horribly wrong with a prominent role for the Snafu here reserved to Hostess restructuring banker Miller Buckfire for not cutting enough of the firm's pre-petition debt, with the straw that broke the camel's back being, what else, unfunded pension liabilities. As was explained back in July:

The critical issue in the bankruptcy is legacy pensions. Hostess has roughly $2 billion in unfunded pension liabilities to its various unions' workers -- the Teamsters but also the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (which has largely chosen not to contest what Hostess wants to do -- that is, to get out of much of that obligation). If the bankruptcy court lets Hostess off the pension hook -- which often happens in these cases -- it only moves the struggle outside the courthouse, and the ante goes up. For the Teamsters can then call a strike -- which its Hostess employees have already ratified by a 9-to-1 margin. If the court doesn't grant relief, Hostess can seek liquidation, which would mean that some creditors get some money, but equity would be gone for good, as would a lot of jobs. Either way, each side holds a nuclear warhead with which to annihilate the company.

Liquidation is what ended up happening, as no compromise was possible, and the magic money tree, primarily as a result of equityholders (and creditors) refusing to inject any more cash.

Yet while the balance sheet burden was certainly the pension liabilities, what precipitated the liquidation was the income statement, and more accurately, the cash flow statement, or specifically the lack of cash flow.

 

as the company tried to reinvent itself in 2009 and 2010, external currents were running against it. The Great Recession hurt many consumer brands generally, and the prices of the commodities that Hostess relied on -- corn, sugar, flour -- went up, which is the opposite of what's supposed to happen in a downturn. In addition, the bakery industry underwent more consolidation when Sara Lee sold out to Bimbo.

 

Those fortuities aggravated Hostess's two root problems -- a highly leveraged capital structure that had little margin of safety, and high labor costs. Neither problem was adequately addressed in the first bankruptcy, and neither existed to the same degree in major competitors like Bimbo and Flowers Food (owner of such brands as Nature's Own and Tastykake). On exiting the first bankruptcy, Hostess's total debt load was nearly $670 million. That was well above what it went into bankruptcy with in the first place -- an unusual circumstance that the company justified on expectations of "growing" into its capital structure.

 

But the company was dead wrong. Its debt sowed the very seeds of the next bankruptcy. Looking back on the decision to reinvest in Hostess in the first bankruptcy, one of the lenders now says, "If you look in the dictionary at the definition of throwing good money after bad, there should be a picture of Hostess beside it."

 

By late 2011, Hostess was getting, well, creamed. Its sales last year -- $2.5 billion -- were down about 11% from 2008 and down 28% from 2004. (Twinkies remain the best individual seller -- 323 million of them in the 52-week period ending June 29, give or take a splurt.) Overall, Hostess lost $341 million in fiscal 2011, 2½ times the loss of the prior year -- and by early 2012, primarily because of burgeoning interest obligations, its debt had grown to about $860 million.

 

As revenue declined, the company continued to burn cash -- in the second half of 2011, the rate was $2 million a week. The liquidity crunch forced Ripplewood in the early spring of 2011 to pump in $40 million more in return for more equity as well as debt that was subordinate to that held by Silver Point and Monarch. In August -- to save a company teetering on the edge of fiscal calamity and forced liquidation -- Silver Point, Monarch, and the group of other lenders put up an additional $30 million to see if a negotiated turnaround was possible.

 

They turned to the unions and demanded new concessions. But the unions, having three years earlier given up thousands of jobs and millions in benefits, flatly refused.

 

The company was going to pieces -- again -- and Hostess filed for Chapter 11 protection -- again -- in January of this year. This time, though, the moneymen were no longer on the same page. As the majority equity holder, Ripplewood badly wanted to keep Hostess out of bankruptcy. It pleaded with the lenders to show flexibility, but they were not so inclined. They lenders held superior fiscal hands and had less downside if Hostess failed. In the event of a bankruptcy, given all the assets Hostess owned, the lenders would still walk away with millions.

There is much more to this story, but the ending is well-known to all, and it is not a happy one.

End result: a near total loss for everyone involved, except the secured creditors of course, who will now get pennies on the dollar, or perhaps even par, for their claims when all is said and done.

Sadly, in many ways Hostess is now indicative of that just as insolvent larger corporation, the USA, whose insurmountable balance sheet liabilities will be the eventual catalyst for its collapse, but only once the Income Statement and the Cash Flow sheet join in. For now, the Fed provides the flow needed to avoid the day of reckoning, but everything ends eventually.

In the meantime, what the Hostess story will hopefully teach the always gullible public, is that nothing is ever black or white, and there are numerous shades of gray in every story: even one in which an "evil" PE firm is unable to come to resolution with labor unions, despite the man in charge of it all being a prominent democrat. Because when it comes to money other things such alliances, ideology and certainly politics are always, always, secondary. Sadly, ever more Americans will be forced to learn this lesson the hard way.

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Fri, 11/16/2012 - 18:25 | 2989882 Ident 7777 economy
Ident 7777 economy's picture

+1 

Fri, 11/16/2012 - 12:44 | 2988240 walküre
walküre's picture

Hostess is a victim of extreme couponing. I kid you not. No manufacturer can survive the double and triple coupon bonanza only to stack some idiot's basement full of junk food and tooth brushes. The manufacturers and grocery giants basically pay to have this stuff leave the shelves. It's a business model that cannot win.

Sat, 11/17/2012 - 03:07 | 2991085 sleepingbeauty
sleepingbeauty's picture

But who makes the coupon??? Oh yeah, the ones that the manufacturer are responsible for say "manufacturer coupon". I guess their accountants can't do math as well as a typical house wife. Can't blame someone else for their incompetence. Actually strike that, they can blame someon else for their incompetence but it doesn't make sense.

Fri, 11/16/2012 - 13:40 | 2988555 sgt_doom
sgt_doom's picture

Ripplewood.....oh, puuuuhlease already!!!!

They are long donors and members of "American Friends of Bilderberg, Inc." -- the American chapter of the Bilderbergers.

Faux crat or R-con --- they all belong to the Bankster Party.

What's in a name?  Not their net worth, that's for damn sure!


Fact Checking

In Michelle Alexander’s wonderful writing and talks (link below) she recounts a moment of skepticism when a young man, whom she believed to be “legitimate,” explains how he was framed by a crooked LA cop.  Later, she would read the news stories of how that specific LA policeman was convicted of framing suspects, or random arrested individuals, thus damning those innocent individuals forever.

Fact checking is a never ending process; we learn that something, once presented as fact, turns out to be fiction and then, upon further historical examination, much of the surrounding circumstances were also fictionalized.

The first superficial stories the corporate media presented on CIA Director Petraeus sound somewhat different after more and more data surfaces.

Jill Kelley’s sizable debt, and her sister’s custody battles, makes them both highly vulnerable to external pressure.

Add to that the flakey-sounding FBI agent, his shirtless (topless) emails to Ms. Kelley, while he ardently pursues an investigation on her behalf.  Then, the suggestion by others that the emails in question to Ms. Kelley weren’t really of a threatening nature to begin with, and Paula Broadwell’s status as a reserve officer in the military, yet another point of vulnerability.

We know the record of FBI flimsiness where evidence is concerned:  from FBI employees, upon retirement (and safely receiving their pensions now), who then blasted the FBI’s handling of DNA evidence in the FBI labs --- to the flimsy and highly suspect “evidence” presented as fact to identify a scientist at Ft. Detrick, after his death, as the Anthrax assassin (said evidence attacked and disputed by highly reputable scientists).

We’ve seen that whether under Bush or Obama, the FBI still appears to be illegally running their COINTELPRO operation, a situation which renders everything originating from the FBI highly, highly suspect!

When doing an historical analysis of the backgrounds of those LA police involved with the investigation of the assassination of Bobby Kennedy back in 1968, we find that almost every single copper turns out to be dirty --- some were later implicated and convicted of various crimes  (Rampart Division) --- one was even implicated in torture-murders in South America, while involved in a CIA international police training program.

In fact, turns out the majority of those police involved in RFK’s assassination investigation were on the CIA’s payroll through the aforementioned international police training program!

There was a police chief in Seattle some years back, named Fitzsimons, who established an unethical record, publicly damning victims of homicides by suggesting they were involved with illegal drugs, when it later turned out --- after the standard police investigation --- that they were simply innocent homicide victims.

Fitzsimons would later be appointed to the board of the FBI Academy at Quantico --- a definite continuation line of unethical possibilities.  (Fitzsimons was appointed by the then Seattle Mayor Norm “there are no gangs in Seattle” Rice.)

An excellent research method to better understand the back story, the underlying agenda, is to closely follow the travel records of individuals like Karl Rove and Richard Perle.

The operational fellows usually exhibit interesting travel itineraries; Rove’s trips to Sweden at the beginning of the actions taken to extradite Wikileaks’ Julian Assange to Sweden, Rove’s trip to Crimea prior to problems erupting in Georgia (the one in Eastern Europe), etc.

It can be difficult as they frequently fly on private jets, registered out of the British Virgin Islands, but well worth the effort.

The FBI has incredible power, but little accountability.  The DOJ’s Lanny Breuer and his weasel words to excuse the perfidy of BP does little to instill confidence in the citizenry; it will be interesting to see if Breuer seriously pursues TransOcean and Halliburton for their culpability as well?

[Disclaimer:  I am a neutral observer with regard to Gen. Petraeus, whom I have little regard for and agree with Col. MacGregor’s assessment in the article link below.  Also, I have no regard for Ms. Broadwell, nor anyone else affiliated with the Aspen Institute, another faux outfit of the plutocracy, but I do believe that their adultery is simply the cover story for some deeper, behind-the-scenes machinations occurring.]


http://www.counterpunch.org/2012/11/14/epitaph-for-a-four-star/

http://cryptome.org/2012-info/spy-flog/spy-flog.htm

http://www.amazon.com/New-Jim-Crow-Michelle-Alexander/dp/1595586431

http://www.ehow.com/how_5067866_track-private-plane-flight.html

http://www.thirtythousandfeet.com/track.htm#websites

http://projects.wsj.com/jettracker/

http://www.propublica.org/article/off-the-radar-private-planes-hidden-from-public-view-040810

http://flightaware.com/

http://www.airliners.net/aviation-forums/general_aviation/read.main/1357692/

http://www.aeroseek.com/webtrax/

http://www.stratosjets.com/flight-tracker.php

 

Fri, 11/16/2012 - 14:58 | 2988980 ExpendableOne
ExpendableOne's picture

Read just this one little book and you'll fully understand how the country is "run".

 

http://www.amazon.com/Secret-Team-Allies-Control-United/dp/0939484358

 

 

Fri, 11/16/2012 - 11:21 | 2987752 Ident 7777 economy
Ident 7777 economy's picture

Hmmm ... which way sugar-rush futures?

Fri, 11/16/2012 - 11:21 | 2987753 Shizzmoney
Shizzmoney's picture

Twinkies can survive a nuclear holocaust......but they couldn't survive union fail and Wall Street corporate raiders.

 

Fri, 11/16/2012 - 11:29 | 2987784 Dre4dwolf
Dre4dwolf's picture

I guess they are going to have to revise the Twinkie episode of "How its made" to "How not to make a twinkie", or "How its NOT made" lol

I kinda liked that episode too, my favorite part is the part where all the twinkies are on the 100% automated assembly line and the the fat diabetic workers do nothing but stare at them / make sure none fall off the track.

 

lol

Fri, 11/16/2012 - 13:56 | 2988638 Papasmurf
Papasmurf's picture

Automated assembly, sort of like the I Love Lucy candy factory episode.  http://www.youtube.com/watch?v=HnbNcQlzV-4

Fri, 11/16/2012 - 11:50 | 2987890 Thulsa Doom
Thulsa Doom's picture

Much desired in Zombieland, too!

Fri, 11/16/2012 - 11:23 | 2987758 The Gooch
The Gooch's picture

How did I know Mittens name would grace this article?

Fri, 11/16/2012 - 11:43 | 2987858 Central Bankster
Central Bankster's picture

Why am I not surprised that you had difficulty interpreting the article? 

Fri, 11/16/2012 - 12:01 | 2987952 The Gooch
The Gooch's picture

Is his name not there, asshole? Even if it is just for comparison.

 

Fri, 11/16/2012 - 12:11 | 2988011 Central Bankster
Central Bankster's picture

Oh come on! its just a laugh:) 

Fri, 11/16/2012 - 12:17 | 2988067 The Gooch
The Gooch's picture

Fair enough.

me asshole.

Fri, 11/16/2012 - 11:24 | 2987759 j0nx
j0nx's picture

Executives and the board get rich and the workers accept austerity. No more. Tear all these mofos down.

Fri, 11/16/2012 - 12:00 | 2987949 jdelano
jdelano's picture

Actually no, I doubt anybody will walk away from this richer.  The expected liquidation value was no doubt fudged and overstated in order to prop up the balance sheet... senior debt holders who made an attempt to save the brand will be lucky to recoup their investment, breaking even at best.  And your workers are in a word, fucked, because they were so convinced that they deserved an unending slew of fat checks in retirement (for a life spent mindlessly injecting cream into tiny cakes) that they shot themselves in the crotch and killed the company...   

Fri, 11/16/2012 - 17:40 | 2989736 JimBowie1958
JimBowie1958's picture

Actually no, I doubt anybody will walk away from this richer.

Except for the fucking lawyers you mean.

Sat, 11/17/2012 - 03:10 | 2991090 sleepingbeauty
sleepingbeauty's picture

+10000

Fri, 11/16/2012 - 11:25 | 2987775 the not so migh...
the not so mighty maximiza's picture

You didn't eat that twinkie.

Fri, 11/16/2012 - 12:05 | 2987968 Troll Magnet
Troll Magnet's picture

yes i did. and you better believe i'll be stocking up on that shit this weekend. too much weed, not enough twinkies in my house.

Fri, 11/16/2012 - 12:07 | 2987980 edifice
edifice's picture

Oh, but I did.

Actually, I prefer Nutty Bars.

Fri, 11/16/2012 - 11:27 | 2987779 Dr. Engali
Dr. Engali's picture

Another reaosn for Moochelle and Bloomberg to be excited. Now if we can just get rid of that pesky Hershey's.

Fri, 11/16/2012 - 12:15 | 2988054 DaveyJones
DaveyJones's picture

a little harder when you own a city

Fri, 11/16/2012 - 11:30 | 2987796 lordbyroniv
lordbyroniv's picture

Snowballs, Chocodiles and Suzy Q's

 

At least America was once a great country.  sigh.

Fri, 11/16/2012 - 11:35 | 2987819 Fredo Corleone
Fredo Corleone's picture

I can recall as a kid, always seeming to have a package of either Suzy-Q's or Yankee Doodles in my lunchbox.

Such were the '70s...tragic, how the Hostess story ends.

Fri, 11/16/2012 - 12:43 | 2988233 Miss Expectations
Miss Expectations's picture

Yodels wrapped in silver and blue foil.  I liked to eat frozen Yankee Doodles.

Fri, 11/16/2012 - 13:27 | 2988338 Fredo Corleone
Fredo Corleone's picture

I remember them well -- Miss, you mention frozen Yankee Doodles: growing up, we always had a box of Devil Dogs in the freezer during summertime...

Fri, 11/16/2012 - 11:33 | 2987810 SeattleBruce
SeattleBruce's picture

Wait - the Democrats (Republicans) really aren't the party of the working person?

Fri, 11/16/2012 - 18:06 | 2989826 Ident 7777 economy
Ident 7777 economy's picture

-1 for your being conflicted; make up your damn mind so we can 'score' you correctly.

Fri, 11/16/2012 - 11:33 | 2987811 Freewheelin Franklin
Freewheelin Franklin's picture

Creative destruction, bitchez.

Fri, 11/16/2012 - 11:33 | 2987812 natty light
natty light's picture

Spend a little more and buy local quality baked goods.

Fri, 11/16/2012 - 11:41 | 2987851 adr
adr's picture

BUT THEY DON'T HAVE ALL THAT FANTASTIC SATURATED FAT!!!!

That's like saying don't eat Oreos, just buy the organic ones from Whole Foods.

What are you, a Nazi???

Fri, 11/16/2012 - 11:46 | 2987867 natty light
natty light's picture

Something w/out beef fat or lard

Fri, 11/16/2012 - 11:35 | 2987813 Dre4dwolf
Dre4dwolf's picture

I just had a thought, since twinkies are going extinct, maybe we should all buy a few dozen boxes and store them, who knows in 50 years they could be worth something to someone.

Is James Dewar still around? I wana get his signature on a box and have it authenticated.

Fri, 11/16/2012 - 12:07 | 2987991 Troll Magnet
Troll Magnet's picture

proof twinkies? goddamn i hate paying premiums...

Fri, 11/16/2012 - 11:36 | 2987822 Freewheelin Franklin
Freewheelin Franklin's picture

I'm gonna go buy a case of Butterscotch Krimpets

 

 

 

 

 

 

Fri, 11/16/2012 - 12:10 | 2988006 Clycntct
Clycntct's picture

Pretty sure that's a different  distress/success.

Tasty cake. Flowers Food.

http://www.philly.com/philly/blogs/inq-phillydeals/Georgia-firm-buys-Tas...

 

Fri, 11/16/2012 - 11:37 | 2987826 lynnybee
lynnybee's picture

is this that ol' bankruptcy for profit business model that seems to be all the rage the past many years .. you know, go into a business, gut it, drive it down & dump the pension responsibilities onto the gov't & the new owners make out like bandits leaving the employees with squat & their heads spinning, "what the hell! i ain't got no job & no pension !"    so, what hedge fund stands to profit handsomely ?

Fri, 11/16/2012 - 12:36 | 2988195 jdelano
jdelano's picture

You have no idea what you are talking about.  Destroying a business is never as profitable as growing one.  Even the most debauched hedge funds and private equity firms know this.  Go talk to someone in PE and let them explain/show you what they actually do before you paint them as villains.  I can't speak for all firms but the ones I do business with operate almost diametrically opposite to your characterization.  Their M.O. is to go into an ailing firm and trim the fat---which often means canning the unproductive guys at the top who are flying around in private jets and playing golf in addition to renegotiating unrealistic pensions.  The goal is to make the business healthier, not tear it apart.  You want villany, look to Washinton.   

Fri, 11/16/2012 - 13:00 | 2988332 Miss Expectations
Miss Expectations's picture

My experience puts me in lynnybee's camp.  The money men who came into Revlon (Perelman and MacAndrews Forbes) first order of business was to sell half the company then raid the pension plan.  They did end up sticking around to "make the business healthier" but they didn't.  I think that the thing is, well, that the money men/financial guys don't think like the original business owners (ie Charles Revson).  They don't love the business, their heart isn't in it and all their decisions are financial.  They end up with company that has no heart.

Fri, 11/16/2012 - 13:30 | 2988497 jdelano
jdelano's picture

You probably have a point about some PE firms being incompetent/not successful because they don't understand the heart of the business...that's valid.  But I'd argue that if the business ultimately ends up worse off it's simply because the PE firm failed, not because they accomplished their "evil" plan to ruin the company and exploit its resources, and they won't "get rich" off it.  Take JCP for example...the goal is to reinvent a dying department store...it doesn't appear to be working, but if the business fails Ackman won't be laughing his way to the bank...he'll be disappointed and slinking away poorer with egg on his face.  Really my point here is that all PE/activist investor men/women shouldn't be lumped in with the corruption axis of Washington, the TBTF banks, the Fed, and Union bosses.  A lot of PE folks are pretty decent people looking to be constructive, not destructive:

  Ackman has given to charitable causes such as the Center for Jewish History to preserve Jewish genealogy[16] where he spearheaded a successful effort to retire their $30 million in debt personally contributing $6.8 million.[17] In a press release, the Ackman family stated, "We want our children to know, not only their living relatives, but those representing past generations for a greater connection to their family and ancestral origin and heritage."[18] This donation made with that ofBruce Berkowitz, founder of Fairholme Capital Management, and Joseph Steinberg, president of Leucadia National, were the three largest individual gifts that the center has ever received.[19]

 

Ackman's foundation donated $1.1 million to the Innocence Project in New York City and Centurion Ministries in Princeton, N.J. The two groups are dedicated to investigating the cases of people who have been wrongfully convicted.[17]

[edit] 

 

 

Fri, 11/16/2012 - 14:03 | 2988676 Diogenes
Diogenes's picture

Yeah but gutting a company is quicker and easier. You can loot as much money in 6 months as you can earn in 10 years, then on to the next deal.

An awesome business model as long as there are companies around with equity built up over the last 50 or 100 years that you can take over and asset strip.

Fri, 11/16/2012 - 17:39 | 2989733 Blankenstein
Blankenstein's picture

I remember back in the housing boom times there were articles about leveraged buyouts where the buyer only had to put down a very small percentage to get a loan to buy the company (similar to home buyers at the time). About 15 million down was all you needed to buy a 3 billion dollar company.  The debt was packaged as CDOs and sold off to investors.  (I wonder what happened to those??)  Then the buyer would take huge consulting and managment fees in the process and then sell off the remains of the company after they had restructured and increased the debt of the company.  They were not interested in investing in the company, they wanted to get-rich-quick.  

Sat, 11/17/2012 - 03:14 | 2991095 sleepingbeauty
sleepingbeauty's picture

I guess it depends from whose point of view you are assessing the situation. And how likely the business is ever going to grow again. Sometimes it is more profitable for TPTB to take the business down on their terms with their CDS and their control over the assets. And some businesses no longer have a viable market, and to re-invent themselves may be "too hard".

Fri, 11/16/2012 - 21:09 | 2990334 Common_Cents22
Common_Cents22's picture

where is the evidence and the math that investors pour money into a company and MAKE money by running it out of business???

Fri, 11/16/2012 - 11:37 | 2987831 ultimate warrior
ultimate warrior's picture

Im going to stock up on a shit load of hostess products and sell them in 5 years for gold and silver.

That's my plan for prosperity.

Fri, 11/16/2012 - 11:50 | 2987886 Mr. Poon
Mr. Poon's picture

Well, you can stockpile it all you want, but when trouble comes, you won't be able to eat . . . umm, wait, never mind, yes, you can.  Carry on!

Fri, 11/16/2012 - 11:38 | 2987834 FuzzyDunlop21
FuzzyDunlop21's picture

Could have easily been avoided

Fri, 11/16/2012 - 11:38 | 2987835 TrumpXVI
TrumpXVI's picture

Maybe that History Channel, "Modern Marvels; Snack Foods" program where Hostess is featured will become a collector's item? 

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