It isn’t every day that a major mainstream news organization puts coverage of a baking company front and center, but that’s precisely what occurred Dec. 10 when the Sunday The New York Times featured a lengthy Page One story about Hostess Brands, Inc. The article, “How the Twinkie Made the Superrich Even Richer,” traces how the buyers of Hostess Brands, Inc. dug the company from the ashes in 2013, and celebrated a successful initial public offering three years later at an eye-popping multiple of their purchase price.
While sprinkling numerous points in the story with an eye toward balance, the thrust of the article’s message is that the Hostess workforce was ravaged (from about 8,000 dedicated snack cake employees to about 1,200 today) while the company’s private equity owners used a range of financial tactics to enrich themselves.The job loss associated with the collapse of Hostess in 2012 remains tragic. But for all its extensive length, the article does not begin to capture the depth of futility when, for years and years, one chief executive after another tried to restore the company to sustainable solvency. Anyone watching this sorry episode knows the answer to the question of whether the existing Hostess business model, with its legacy obsolete plants and union contracts, could have been salvaged. An emphatic “no.” Notwithstanding fairness questions over carried interest tax rules, the Hostess saga offers a case study in the astonishing value a talented private equity firm may bring to a failing business enterprise.