A Highlight on Young Investors & Innovators

Rachel Fox - November 20, 2012

Union Strikes & The Stock Market: Hostess, Wal-Mart. Who’s Next?

Rachel Fox - November 20, 2012

The Hostess Shutdown: A Whole New Perspective on Twinkies

Rachel Fox - November 20, 2012

I just read that Ebay had 2 boxes of 10 Twinkies up for bid for $20,000,000. There is a lot going on here behind this Ebay/Twinkie deal…a weak economy, a strike, bankruptcy, labor, unemployment, management, jobs, underground economy…and more.

As a 16 year old, I am learning new things every day and, even though labor strikes may be common to a lot of you, it’s a new and eye-opening thing to me. In fact, I researched the impact of strikes on a company’s stock price, and I will dutifully share that in the next blog.

For today’s blog, though, I want to share some less common notions about Hostess and their issues. Some people are blaming the Bakery, Confectionery, Tobacco Workers, and Grain Millers International Union (BCTGM), but there may be other factors that are more responsible for causing Hostess to go out of business.

First, let’s take a look at Hostess’s bankruptcies, past and present. In 2004, when Hostess was called Interstate Bakeries, it underwent the longest bankruptcy process in history. When they came out of bankruptcy some five years later in 2009, Interstate changed its name to Hostess.

Type Date Entered Date Exited Assets Liabilities
Chapter 11 Restructuring Sep 2004 Feb 2009 $1,600,000,000 $1,300,000,000
Chapter 11 Jan 2012 Oct 2012 $980,000,000 $1,400,000,000
Chapter 7 Nov 2012 TBD TBD TBD

Second, let’s take a look at whether Hostess was private or public during its history. From this we learn that Hostess entered bankruptcy when it was both a public company and a private company.

Pre-1987: Public and Private
1987: Private
1991: Public
2004-2009: Bankruptcy
2009: Private

You may be wondering if the threat of bankruptcy has an impact on a company’s stock price. According to PrivCo.com, “The company’s (Hostess’s) stock price plunged by approximately 24% on September 15, 2004 over concerns about its financial health.” The answer is that a looming bankruptcy can have a MAJOR impact on a stock’s price, so beware of this for the new Wal-Mart strike that I’ll be blogging about this week.

Since whether the company was private or public does not seem to have caused it success or its demise, what other factors may have been responsible?

Reasons why Hostess really closed:

  1. Carbs anyone?
    The days of eating breads, pasta, cakes, and cookies, at every meal is long past. Some people won’t even touch wheat, let alone eat it. Hostesses brands are all carb-based. As much as I’d love to each a PB&J sandwich on soft, amazing Wonderbread, I’m not gonna.
  2. Cupcake Wars
    It’s not just for TV. People are enamored with cupcakes these days, and the new ones aren’t the pre-packaged ones our parents ate. Nope. We like our cupcakes custom-made at $5 a pop, in chic little places like “Sprinkles” or the million other little cupcake boutiques around the globe. Just as much as non-carb eaters, these elite cupcake makers have stolen a part of this market.
  3. Unions? Or just Mis-Management?
    It’s possible that the unions had an impact on the health of Hostess, but financial reports show that Hostess has gone through times of both profits and losses. During downtimes, mis-management, high management salaries, and general over-spending were most often cited.
  4. Accessibility
    Would you rather eat a cute little cake pop with your Starbucks coffee, or perhaps a fresh-baked piece of pumpkin bread? Or would you rather have a SnoBall…? I thought so. When Hostess was one of the few choices back then, you ate what was offered. But Starbucks is here, and there’s one on every corner. So my Reason #4 for why Hostess may be going bankrupt is…Starbucks.

I could go on with more examples like this but I think it’s clear. Maybe management and unions had a lot to do with us saying goodbye to Twinkies and Devil Dogs; but maybe it’s more, because there are more modern, preferred products in the same category that are appealing to people. Maybe dinosaurs are gone because it’s time for them to be gone.

are twinkies the next dinosaur by Rachel Fox from Fox on Stocks

Then again, maybe I’ll see that box of Twinkies next to the Dinosaur Exhibit at the Franklin Institute Museum on my next trip there.