How the Twinkie Made the Super-Rich Even Richer
As fans gathered on Rockefeller Plaza in Manhattan, Al Roker pulled up
in a big red delivery truck, ready to give America what it wanted: Twinkies.
The snack cakes flew through the air into the crowd pressed against metal barriers. One man shoved cream-filled treats into his mouth. Another “Today” host tucked Twinkies into the neckline of her dress.
Across the nation in the summer of 2013, there was a feeding frenzy for Twinkies. The iconic snack cake returned to shelves just months after Hostess had shuttered its bakeries and laid off thousands of workers. The return was billed on “Today” as “the sweetest comeback in the history of ever.”
Nowhere was it sweeter, perhaps, than at the investment firms Apollo Global Management and Metropoulos & Company, which spent $186 million in cash to buy some of Hostess’s snack cake bakeries and brands in early 2013.
Less than four years later, they sold the company in a deal that valued Hostess at $2.3 billion. 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.
Deals like Hostess have helped make the men running the six largest publicly traded private equity firms collectively the highest-earning executives of any major American industry.
Yet even as private equity’s ability to generate huge profits is indisputable, the industry’s value to the work force and the broader economy is still a matter of debate. Hostess, which has bounced between multiple private equity owners over the last decade, shows how murky the jobs issue can be.
In 2012, the company filed for bankruptcy under the private equity firm Ripplewood Holdings. Months later, with Ripplewood having lost control and the company’s creditors in charge, Hostess was shut down and its workers sent home for good.
Without investment from Apollo and Metropoulos, Hostess brands and all those jobs might have vanished forever after the bankruptcy. The way these firms see it, they created a new company and new jobs with higher pay and generous bonuses.
But the new Hostess employs only 1,200 people, a fraction of the roughly 8,000 workers who lost their jobs at Hostess’s snack cake business during the 2012 bankruptcy.
And some Hostess employees who got their jobs back lost them again. Under Apollo and Metropoulos, Hostess shut down one of the plants they reopened in Illinois, costing 415 jobs.
The collapse and revival of Hostess illustrates how even in a business success, many workers don’t share in the gains. The episode also provides a snapshot of the economic forces that helped propel Donald J. Trump to the White House.
Since losing his job at Hostess in 2012, Mark Popovich has had three jobs, including one that paid about $10 an hour, half what he made at the Twinkie-maker. A lifelong Democrat and devoted “union man,” Mr. Popovich said he supported Mr. Trump, the first time he ever voted Republican.
“It’s getting old, getting bounced around all the time,” said Mr. Popovich, a 58-year-old Ohio resident.
Such frustrations stem from broader shifts in the economy, as all types of companies turn to automation to cut costs and labor unions lose their influence. While these changes have helped keep companies profitable, private equity has used these shifts in the workplace to supercharge wealth far beyond that of the typical chief executive.
“People understand jobs going to China,” said Michael Hillard, an economics professor at the University of Southern Maine. “But no one has ever heard of these private equity firms that come in and do all this financial engineering. It is much more complicated and less visible.”
The Times investigation of the Hostess deal shows that today’s private equity also uses another set of tactics, like special dividends and tax arrangements, that maximize profits in creative, yet financially risky ways.
A year after the layoffs at the Hostess plant in Illinois, Apollo and Metropoulos arranged for the company to borrow about $1.3 billion. Apollo and Metropoulos used most of that sum to pay themselves, and their investors, an early dividend on their investment.
The firms also found a way to make money even after the company was sold. The firms, The Times investigation found, struck a deal to collect as much as $400 million over the next 15 years, based on what Hostess’s future tax savings might be.
These winnings do not come without risk to the private equity firms, which------
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