The behind-the-scenes tale of Hostess and Ripplewood Holdings, the private equity firm that took control of Hostess as part of the Twinkie maker's bankruptcy process in 2009, may be the opposite of a project to buy the company, strip it and flip it, according to a commentary in the New York Times DealBook blog yesterday. When Ripplewood founder Timothy C. Collins originally looked at Hostess, he was trying to make investments in troubled companies with union workers. He was convinced that he could work with labor organizations to turn around iconic American businesses, and he hoped Hostess would become a model for similar deals. Collins sought out Richard A. Gephardt, the former House majority leader, who had become a consultant on labor issues, to help Ripplewood acquire Hostess and work with its unions in 2009. While Ripplewood sought significant concessions from the unions in 2009, some insiders and outside analysts privately suggested that Ripplewood did not fight hard enough for even greater givebacks from the unions in the bankruptcy process - savings worth $110 million. In addition, the company was saddled with $670 million in debt, which had jumped by about $200 million as part of the sale during bankruptcy. Unlike some of the cases of private equity firms paying themselves huge dividends and leveraging their companies even further, Ripplewood did not do that. However, Ripplewood's management was far from a model for the industry, according to the commentary. For at least the first year of the new ownership, Ripplewood charged Hostess management and consulting fees, which were "in the millions of dollars." As Hostess's balance sheet worsened, Ripplewood stopped seeking the payments.
