"In terms of American icons, I would say they're up there with Marilyn Monroe," said Greg Rayburn, CEO of Hostess Brands, "because, the reaction has been one of 'you can't possibly take my Twinkies away.'"
Twinkies, Ding Dongs, Sno Balls, Ho-Hos, Zingers, Suzy Q's, Wonder Bread – all are staples of American childhood lunchboxes. They harken back to an innocent time when calories weren't counted, and a dusting of fluorescent coconut flakes on a snack, was considered a delicacy.
Still, Hostess has closed after 83 years in business, only eight months after Rayburn was brought in to restructure the company. On February 11, 2013 Hostess Brands won approval from the U.S. bankruptcy court to put some of its brands up for auction. A sale hearing is set for March, 2013. Private-equity firms Apollo Global Management and Metropoulo have teamed up to bid $410 million for most of Hostess's business. "I think nostalgia has played a big role in this sales process," Rayburn said.
The move follows the CEO's announcement in November 2012, that the company would be liquidated. Rayburn claimed the closure came in the wake of failed negotiations with the Bakery, Confectionery, Tobacco and Grain Millers Union over a new labor contract, and a resulting strike by its members, which crippled the company's operations. Rayburn says 18,500 people lost their jobs.
"The bakers' union did us in," Rayburn told Off The Cuff. "I think in their mind the company was going to fail at some point in the future. They did not believe in the 'go forward' plan. And so they felt that, now or later, it's really not going to matter."
The Bakery, Confectionery, Tobacco and Grain Millers Union told Off The Cuff,"98 percent of our contracts are negotiated without incident. Our union made significant concessions in Hostess' first bankruptcy in the interest of saving the company and we found that none of the promised investments were made, leading to the 2012 bankruptcy filing. We felt strongly this time around that the viability of the company had been fatally compromised under its current structure. In short – what we saw unfold in recent months was an inevitable conclusion based on the financial state of the company.... The BCTGM looks forward to the opportunity to work together productively with new owners; and is now engaging with bidders who recognize the value that we can bring to an ongoing business and get these iconic products back to consumers as quickly as possible."
In addition to the union's actions, Greg Rayburn blamed the company's demise on its failure to innovate. "I think Hostess is a great example of a company that has had tremendous opportunities that it has not taken advantage of," Rayburn said. "So when I look at Hostess, $2.5 billion of revenue-- and iconic brands that have been created over 80 years--to me that's nothing more than a platform.
"So you can't be in business and say, 'Here's the product and it's the same product that was there in that box 30 years ago' -- because you'll just-- you'll-- you'll whither away and-- and die."
Rayburn is a turnaround expert. His expertise is in salvaging companies, or if that fails, selling off their assets. He's been the CEO or CRO (Chief Restructuring Officer) of at least nine companies, including Sunterra Resorts, Muzak, and Worldcom.
"What I want to find out on the front-end is, 'What are my competitive advantages? Do I have any?' If I have at least one, then I can structure a turnaround around that," he said. "The trick then is for me to say, 'based on that, what does the end game need to look like for this company?' It's not a mission statement. It's a very highly quantified definition of what that company needs to look like in the markets and against competition, and with specific products."
"I'm an optimist. I've never been brought in, I think, to kill anything," he claimed. "Was Hostess a failure in terms of a turnaround? Absolutely -- because we didn't survive. If I'm asked to come in and try to solve a complex series of problems, then if that doesn't happen and we have to go through the trauma that we had to go through with Hostess in terms of the layoffs, then regardless of what we get in terms of selling the brands, in my book that's still a failure."
"Laying people off is always a difficult process," Rayburn said. "You can't cut your way to success. You can't cut your way to viability."
Still, he said that in the course of most turnarounds, he hasn't had to. "You can change culture pretty easily. Most people think that you can't, especially when I'm dealing with companies that are decades old. But for me, culture is nothing more than behavior over time. Behavior over time is always driven by incentives. What I find then is if that doesn't fit for people they will self select out."
How does it feel to be the CEO of a company that doesn't exist? "It feels comfortable because it's what I do. If you wanted to make me uncomfortable, you'd give me a gun and tell me to chase a guy down an alley. I would probably pass out. I would pass out if you asked me to carve somebody up with a scalpel. But I love what I do."
Rayburn is hopeful that the Hostess brands will live on. "I have three boys. In 29 years of doing turnarounds and re-structuring, none of them have ever really cared what company I was trying to save or fix until now. And my eight-year-old is pretty intensely interested in whether the pantry is going have those products."
And no, contrary to popular belief, those Twinkies won't stay fresh in that pantry for the next 100 years.