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The 2012 liquidation of Hostess Brands may have been the result of sabotage, according to an explosive complaint filed with New York state’s top cop.
The bakery’s board, faced with a $2 billion pension liability, increased trade discounts to a point where Hostess was unprofitable and doomed, a former Teamsters exec claims in a complaint filed with Attorney General Eric Schneiderman, The Post has learned.
Roughly 17,000 Hostess workers were invested in union pensions, many of which were at risk of being underfunded.
The board decided Hostess was worth more dead than alive, former Teamsters executive Richard Volpe, who oversaw Hostess workers until 2011, told The Post.
“The [former Hostess] board of directors deliberately sunk the company to avoid $2 billion of pension liability,” Volpe said in the complaint.
Indeed, Hostess appears to have increased trade discounts to 20 percent in 2010, from 14 percent the prior year, according to company financials reviewed by The Post.
The increase, pushed by the board, according to Volpe’s complaint, ran afoul of the suggested upper limit proposed by restructuring firm Alvarez & Marsal, which worked with the bakery when it was in Chapter 11 in 2009.
The firm required Hostess to keep trade discounting to no more than 14 percent of route sales, Volpe said.
With trade discounts at 20 percent, Hostess was guaranteed to lose money, Volpe said.
Volpe’s complaint was filed in May. A restructured Hostess, under new management, saw its first Twinkies hit store shelves yesterday.
Volpe said the AG told him several weeks ago he was looking at the case. The AG’s office declined comment.
Hostess emerged from bankruptcy in 2009 under split ownership whereby private equity firm Ripplewood Holdings and the company’s secured creditors — including hedge fund Silver Point Capital — received equal shares.
While trade discounts are often raised for short periods to increase market share or sales, or both, the move by Hostess accomplished neither, according to the complaint.
Hostess in 2011 reached out to its unions, saying it was losing money and needed concessions. The Teamsters, by a slim margin, voted down a proposed new pay package.
Hostess decided soon after to accelerate losses to the point where it would force the unions to allow the cash-strapped baker to end its commitment to fund its pensions, Volpe claims in his complaint.
Trade spending in fiscal 2011 rose to 23 percent.
The baker filed for bankruptcy again, in January 2012.
Much of the snack food business, including Twinkies, was sold to Apollo Global Management and C. Dean Metropoulos earlier this year in a deal that gained Silver Point and other creditor-owners full recovery of most of their secured debt.
If Hostess continued to operate and post losses, the return for the creditor-owners would have been a lot less, sources said.
Ripplewood’s equity was wiped out.
Silver Point declined comment on the complaint. A source close to the creditors said Ripplewood, until the 2012 bankruptcy, controlled four of seven board seats and the business.