CVC Capital Partners and Nordic Capital buyout of LEAF: Killing the milkcow
Six months after CVC Capital Partners and Nordic Capital bought the LEAF confectionary company in Finland for €850 million, the productive and highly profitable facrtory in Turku was closed in March 2005.
LEAF: Killing the milkcow
by Henri Lindholm, Secretary, Finnish Foodworkers Union (SEL)
The workforce at the plant were used to bad news. Although the LEAF factory had been part of the fabric of the industrial landscape in Turku for some one hundred years, recent times had brought layoffs and reductions in staffing. The warehouse and logistics department had been outsourced a couple of years earlier, and long serving employees were forced to take part time jobs or face termination of employment. Nothing, however, could prepare the employees for what was to be announced on May 25, 2005.
Out of the blue LEAF announced that it planned to close the Turku factory. As a result, 460 employees would lose their jobs. The company gave overcapacity as the reason but at the same time admitted that it was going build new plants in Eastern Europe, where costs and wages were lower. The Turku factory was profitable and had been generating a substantial share of the overall LEAF profit. Only six months earlier, LEAF had been bought by two investment companies, CVC Capital Partners and Nordic Capital, for €850 million. The former owner CSM had harboured great plans for its confectionery division but had been unable to establish itself as truly major player in the European market.
The confectionery company was originally known as Hellas and was owned by the Finnish giant Huhtamäki. The name LEAF was acquired in the US through a takeover of Hershey. The company at that stage planned to promote LEAF as a worldwide brand. After getting a bloody nose in the North American market the company sold its confectionery division to CSM.
When the news about the planned closure came, my union SEL along with the white-collar union TU immediately launched various protest actions. The workforce gathered at the central square in Turku for a demonstration. The mayor was invited, as were other politicians. The unions pleaded with LEAF to reverse its decision or at least to allow time for exploring other options. To no avail, as it turned out. The company announced that it was only going to follow the time limits established in Finnish legislation for negotiations in connection with closures, but nothing more. We suggested that the final decision should be postponed in order to explore other options, for example reducing production and packaging costs.
LEAF also announced there were not going to be any social packages or compensation schemes. It was obvious that we were with dealing a very aggressive owner. The Finnish Minister for Industry Mauri Pekkarinen was contacted, as were some medium sized companies that were seen as potential buyers of the local brands. Behind the scenes the politicians were lending a sympathetic ear, but no more. There seemed no way to reign in the forces of global finance and production.
The brands
The majority of the brands produced in Turku were either iconic local brands like Tupla chocolate bars and Mynthon hard boiled candy or innovative products developed in Finland like Xylitol Jenkki chewing gum. At the time it was thought that the chewing gum production would be shipped to Holland. That at least would have made some economic sense since there was substantial overcapacity in Sneek, Holland. It later transpired that even that production was to be outsourced.
The owners
CVC Capital Partners describes itself as an independent buyout group. Since the company was founded in 1981 it has acquired 220 companies in Europe alone for more than €61 million. It currently holds a portfolio with some 40 companies. It is the longest established private equity firm in Europe. CVC, according to its own description, targets enterprises valued at at least €150 million.
Nordic Capital is the leading Nordic private equity fund, investing primarily in the Nordic region. It claims to focus on "investments through committed ownership." Its investment principles include active partnership with management, encouraging a "hands-on" approach to problem solving.
The structure of the new ownership had an immediate effect on the negotiating climate. We were clearly dealing with people who had little time for industrial relations. The central management in Holland appointed by the owners gave the impression of being a bunch of young movers for whom patience was not a virtue. They dressed in jeans and casual shirts, but their dress code couldn't hide the fact that they quite clearly were on a mission to eliminate all obstacles standing in the way of set targets, in the shortest possible time.
The outcome
When the news about the closure hit the plant, production levels slumped. When this form of industrial action continued for a few weeks the management was seized with panic. After various threats the company now suddenly had the courtesy of inviting me to Holland, along with the shop stewards for the unions. Negotiations for a social plan finally gathered pace. LEAF had also hired a top investment lawyer who sat in on the negotiations to control the local management and give the owners direct access to the negotiations. Apparently even the management was not to be trusted. Any bill exceeding €1000 has to be approved by central management in Holland.
In the end we finally managed to extract a social package we could live with, totalling some €12 million. Unfortunately this money was scant reward for the long serving employees losing their jobs. There is still considerable bitterness in the workforce. Some feel the union did not do enough. It has to be admitted that we failed to find alternative solutions to enable continued production at the site. The contacts with the state and city authorities did not lead to new production, and the site is to close at the end of the year. The employees have, to varying degrees, found new employment, but with the closure Turku will lose a long industrial tradition.