Hostess New York Times article
“How the Twinkie Made the Superrich Even Richer,” uses Hostess as a case study for the workings of private equity firms.

NEW YORK — For the grain-based foods industry, the recent initial public offering of Hostess Brands, Inc. represented a major milestone in the company’s recovery from its near-death experience in 2012. For The New York Times, the i.p.o. was grist for an exhaustive feature focusing on how lucrative private equity investments are for buyers of successful investments such as the Hostess revival.

Published Dec. 10, the Page 1 story, “How the Twinkie Made the Superrich Even Richer,” uses Hostess as a case study for the workings of private equity firms. In addition to focusing on Apollo Global Management and Metropoulos & Co., the 4,500-word article notes that the top executives at private equity firms in the United States are paid far more than chief executive officers of leading U.S. operating companies, including “the leaders of Facebook and Apple, companies that revolutionized the way society communicates.” The Times article was written by Michael Corkery and Ben Protess.

Treated especially briefly in the article were the financial woes Hostess was unable to reverse over many years under the leadership of  numerous experienced chief executive officers, including a prominent company turnaround specialist.

“In 2012, the baking company had gone through a bruising bankruptcy, its second in a decade,” the Times article says. “The company laid off most of its 18,500 unionized drivers, loaders and bakers, not long after the bakers’ union voted for a companywide strike rather than accept another round of concessions.”

Apollo and Metropoulos acquired most of the Hostess snack cake assets in early 2013 for $186 million.

“Less than four years later, they sold the company in a deal that valued Hostess at $2.3 billion,” the Times says. “Apollo and Metropoulos have now reaped a return totaling 13 times their original cash investment.

“Behind the financial maneuvering at Hostess, an investigation by The New York Times found a blueprint for how private equity executives like those at Apollo have amassed some of the greatest fortunes of the modern era.”

Elements within this blueprint include special dividends and tax arrangements aimed at maximizing profits but sometimes adding risk. For example, once the Hostess business had reestablished its footing, the company borrowed $1.3 billion, most of which was used to pay a dividend to investor. The firms will collect up to another $400 million over the next 15 years based on future tax savings.

The story also discusses at length the reduced workforce at Hostess since the bankruptcy. Hostess currently has 1,200 employees, a fraction of the 8,000 working on the snack cake business before the bankruptcy, the Times says. The story acknowledges that had Apollo and Metropoulos failed to make their initial investment, “Hostess brands and all those jobs might have vanished forever after the bankruptcy.”