Preserved: How the Twinkie will Survive

Translating Wall Street: The Twinkie's survival is a story of American capitalism.
Published: December 9, 2012
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“When it's between my career or a Twinkie, the Twinkie always wins.” That's what Jason Alexander, of Seinfeld fame, (George Costanza) had to say in 1996 about the cream-filled cake that has been all over the news lately.

A few years after that, President Bill Clinton included the Twinkie in the National Millenium Time Capsule as an “object of enduring American symbolism.”

A little more than a decade and three corporate bankruptcies later, you might have thought that the future of this American icon is in doubt with the liquidation of its maker, Hostess Brands Inc. That's what the hype and hyperbole have been suggesting.

That the Twinkie will survive while Hostess won't (except maybe in name only) makes for a story that is both interesting and illustrative of American capitalism.

The story starts out in 1930, when the Continental Baking Co. was looking for an inexpensive bakery product that would appeal to Depression era consumers. Bakery manager James Dewar, who had started his career 10 years earlier working for the company outside Chicago driving a horse-drawn pound cake wagon, created the recipe for the original Twinkie.

He took strawberry shortcakes that the bakery had previously made and injected them with banana cream filling. The name Twinkie was, according to Dewar, inspired by a billboard he saw advertising “Twinkle Toe Shoes,” which he shortened to make the name “a little zippier for the kids.”

Unlike strawberries, which were available only seasonally at the time, bananas could be sold year round. He and the bakery had a hit.

Continental Baking was acquired by ITT Corp. in 1968 and Ralston Purina in 1984 before being purchased by its competitor Interstate Bakeries Corp., in 1995.

Interstate Bakeries was itself the product of over a dozen corporate mergers and acquisitions, adding and dropping products and brands and changing names several times along the way.

Interstate Bakeries filed for bankruptcy in 2004, and in 2009, when the surviving company came out of bankruptcy, it was known as Hostess Brands Inc. and was owned by Ripplewood Holdings, a private equity firm.

But the company proved not to be viable.

In January, Hostess again filed for Chapter 11 bankruptcy proceedings, listing $982 million in assets and $1.43 billion in debt, most of that owed to union pension plans.

In legal papers, management cited a contract dispute and related strike by Hostess's unionized workers starting Nov. 9 as the reason for the recently commenced liquidation. But there were a lot of possible reasons, depending on point of view, why the company's finances were stretched so thin: high sugar costs, inflexible unions, too much debt brought on by corporate transactions, and poor management, among others.