Goodbye, Twinkies: Hostess shutting down

[simms3]

Boo hoo.  This was a leveraged (I think...Apollo is a large PE firm with debt) buyout by a private equity firm.  This is a surprise, how?  If Hostess workers are unionized, they had all of this knowledge up front and labor deals were struck before the deal was consummated.  Nobody is getting ripped off.  A PE firm has investors, usually PENSION FUNDS and even funds tied to UNIONS that may include Hostess employees in their membership.  Their cost of capital is not low because it's not debt/line of credit.  The investors must get paid, so why would low-wage, low-skilled employees of Hostess who sit in a factory and press buttons so machines can make fake cakes deserve all of the income?  Apollo's investors technically include union workers and teachers and blue collar workers who all have pensions.  Perhaps the Hostess workers, too.  Who knows?  Why are we sad?

This says it all:

The payout won't affect the company's rating of B- and will leave it with $40 million in cash and $60 million in available credit.

Which means the ratings agency used (either Fitch or S&P in this case) expected this.  B- is not investment grade.  There is certainly a level of risk associated with this company and a reason why it's owned by a PE firm and not by shareholders with traditional debt any longer.

#F*****gcommieswhocan'tunderstandsimplefinance/capitalism

[finehoe]

Why are we sad?

The better question is why are the private equity partners who are raking in hundreds of millions a year only taxed at 15 percent -- less than the tax rate paid by middle-class Americans?



#F*****dimbulbswhocan'tunderstandsimpletaxfairness/cronycapitalism

[simms3]

If you want to get into it, that's a vast oversimplification of the tax rate incurred by a private corporation.  A PE firm has capital gains, but also has operating income taxed at the corporate rate.  Two different tax rates.  Also, the money may have been invested as a fund of fund, in which case there is a middleman like a placement firm or advisor.  So PE firm pays advisor which pays out its pension fund investors.

Then it pays out its investors, which could include direct investors or advisors/placement agencies (Townsend being the largest pension fund advisor in the US).  These agencies serve as middlemen and are there to safeguard the investment needs of various pension funds for teachers, firefighters, transit workers, policemen, service employees, construction workers, etc all of which are unionized like I'm assuming the Hostess workers are.  These middlemen pay taxes, mostly cap gains on payouts unless it's structured as operating, though I'm admittedly not the most familiar with their tax structures.

Then those middlemen, the advisors, pay out their investors, the pension funds for teachers and policemen and firefighters.  Those pension funds then pay taxes, and you can do your own research on the rates, typically cap gains.

Then it (the PE firm) pays its employees.  Some of the employees at the top know how to plan out their taxes better than the average American, and so while they make a lot more than most of their employees (obviously) and most Americans (obviously), they pay lower taxes, and so why am I going to get my panties in a wad over their personal business?

Then those investors, the pension funds, pay out pensions to former employees/teachers/etc.  Those middle class Americans then pay taxes on what they receive as pension income.  You can research or possibly speak from experience on what rate you pay there.

Of the $175MM payout to Apollo and a partner, a very very small portion will go to the managing principals.  A similar amount will go to the large amount of employees at these firms that are managing the asset and ensuring the success of the investment for the firm's investors, these pension funds.

Then the vast bulk will go to investors, who also as I pointed out pay taxes before after several steps it gets into the hands of the actual individual middle class people.  Not nearly as efficient as stock investment, but this is how pension funds work.  Some of the investors are also high net worth individuals, and before they receive their pay out, their money has been taxed countless times, as well.

So if you are a middle class American OR an HNW investor in a PE firm, you've been taxed A LOT more than 15% by the time the money gets to you.  I don't presume to judge what's fair or not, but this is the reality of the system and of taxes.

If you want a more efficient (less tax overall though more at the personal level, and fewer fees), but MUCH higher risk, then you'll do your own investing.  You won't rely on a union or pension fund, and quite frankly you won't max out your 401K limit, but rather do your own placement carefully treading water to avoid trading fees.  If you have the time and risk aversion to sweat that out, then you can avoid all of this.  But if you're like millions of Americans and would rather not worry as much about personal finances and put it in someone else's hands to manage, then don't blame the PE firms' individual principals for YOUR higher tax rate.  WTF

[JayBird]

Finehoe, in the article you use as basis where does it say anything about employee treatment? All this is Apollo being rewarded for good stewardship. They used less cash and had better EBITDA than S&P anticipated. This is normal business, nothing out of the ordinary. And in reality, every business that buys another does this just at different scales.

[ChriswUfGator]

Finehoe, in the article you use as basis where does it say anything about employee treatment? All this is Apollo being rewarded for good stewardship. They used less cash and had better EBITDA than S&P anticipated. This is normal business, nothing out of the ordinary. And in reality, every business that buys another does this just at different scales.

That tends to happen when you cut pretty much every employee's salary at once, not exactly a stroke of financial genius. Where does everyone think these folks wind up, other than as the same "net takers" on social security, medicaid, etc., that the republicans constantly bitch about? And nobody sees cause and effect?

[carpnter]

Finehoe, in the article you use as basis where does it say anything about employee treatment? All this is Apollo being rewarded for good stewardship. They used less cash and had better EBITDA than S&P anticipated. This is normal business, nothing out of the ordinary. And in reality, every business that buys another does this just at different scales.

That tends to happen when you cut pretty much every employee's salary at once, not exactly a stroke of financial genius. Where does everyone think these folks wind up, other than as the same "net takers" on social security, medicaid, etc., that the republicans constantly bitch about? And nobody sees cause and effect?

Isn't Apollo the company that bought Hostess after the original owner declared bankruptcy and shut the company down?

[JayBird]

Finehoe, in the article you use as basis where does it say anything about employee treatment? All this is Apollo being rewarded for good stewardship. They used less cash and had better EBITDA than S&P anticipated. This is normal business, nothing out of the ordinary. And in reality, every business that buys another does this just at different scales.

That tends to happen when you cut pretty much every employee's salary at once, not exactly a stroke of financial genius. Where does everyone think these folks wind up, other than as the same "net takers" on social security, medicaid, etc., that the republicans constantly bitch about? And nobody sees cause and effect?

Catch 22 no? If you buy a business out of bankruptcy then obviously you have to do what the previous owners couldn't or wouldn't, cuts costs and/or increase sales or what is the point. You either have a bankrupt company with ALL their former employees out of a job or a combination of some employees out of a job and some with lower wages.

Would those employees say they are at least happy to have a paying job? Who knows.

Salaries cut??? The ones whom were re-hired got raises (though only 3-5%), as a thank you for returning and rebuilding. Granted not all were re-hired, but like Apache said the previous owners went bankrupt! I understand that most on here are anti-corporate America, but I just don't understand how they're the bad guys. This is actually what all buyout companies should be doing.