The IUF's Private Equity Buyout Watch: Private-equity buyouts of companies in IUF sectors - the changing organizing & bargaining environment

In the past five years private-equity funds have become significant short-term owners of manufacturing and services companies - acquiring, restructuring and disposing of these companies as liquid assets regardless of actual productivity and profitability. Over the past decade private-equity funds have mobilized trillions of dollars for the acquisition of companies in virtually every industrial and service sector, leading The Economist to declare: "Today, the private-equity industry has moved from the fringe to the centre of the capitalist action.”

Workers in virtually all sectors face the threat of rapidly changing ownership and the imposition of restructuring plans and short-term targets that are based on a financial market logic that places no value in real production, productivity or jobs.

In just the first eight weeks of 2006, hedge funds and private-equity funds made over 4,000 deals involving the acquisition and disposal of US$473 billion in assets. Among the ‘assets’ exchanged were manufacturing and service operations employing hundreds of thousands of workers. This includes, for example, 3,000 workers employed in the European Beverages Division of Cadbury Schweppes, the world’s largest confectionery company. In what is now a familiar pattern in the food and beverage industry, Cadbury Schweppes sold its European Beverages Division to two private-equity funds, Blackstone Group International and Lion Capital LLP in February 2006 US$2.2 billion. As a result, the workplaces of 3,000 workers were instantly transformed into another financial asset in Blackstone’s US$45 billion portfolio (which exercised control over the workplaces of 300,000 workers as of November 2004). This together with the examples of layoffs and closures we discuss below illustrates the visceral employment impact of financialization.

In all of those sectors where the IUF has members food, beverages, hotel and catering, agriculture and tobacco we have seen the financialization of companies and the intrusion of new kinds of investment capital, particularly private-equity funds and real estate investment trusts (REITs). In the following discussion of financialization and its impact on workers and their unions in the IUF sectors, we deal specifically with examples from the food, beverage and catering sectors.

Major companies in IUF sectors are spinning off important parts of their operations (both manufacturing and services) to be rotated through an endless round of investment portfolios.

This destructive process is illustrated by the closure of the Leaf confectionary plant in Turku, Finland in May 2005. When the Finnish company, Huhtamaki, transformed itself into a specialized global packing company in 1999, it sold Leaf to the Dutch confectionery and bakery company CSM, which then sold Leaf to two private equity funds, Nordic Capital and CVC Capital Partners, in March 2005. Shortly after this acquisition it was announced that the Leaf plant in Turku would be closed and 460 workers laid-off a move that shocked both the union and public opinion. The country is accustomed to industrial transformation, having seen entire sectors (e.g. textiles) rise and fall. What was new and shocking was the closure of a plant with high levels of productivity and profitability. "Nobody could imagine", said the chief shop steward at the plant, "that such a large and profitable unit would be shut down.” The closure announcement was followed by a threat to cut wages by 50 per cent, prompting union members to stop work. The management was forced to back down on the wage cuts, but the union's challenge to the closure, arguing that the plant was both profitable and viable, was ultimately irrelevant in a decision determined by the financial imperatives driving the new owners of Leaf.

Since 1990, Nordic Capital, a relatively small investment fund of €1.5 billion has acquired a portfolio of 21 companies, ranging from biotech, pay TV and pharmaceuticals to furniture, and three food companies, including Leaf. In the same period, it has “divested” 25 companies. Nordic Capital’s investment criteria define the “ambition” of the firm "to be an active owner for three to seven years, and then to realize capital gains for its investors." This three to seven year cycle of acquisition and disposal constitutes the private-equity industry’s long-term investment horizon an ambition that is then aggressively imposed on the manufacturing and food processing industry. The much larger private-equity fund involved in the acquisition of Leaf and the liquidation of its profitable plant in Turku, CVC Capital Partners (“specializing in large scale leveraged buyouts”) has mobilized US$18 billion since 1981 for acquiring and disposing of 220 companies. Its current portfolio of 38 companies includes seven food companies and one catering company.

The far-reaching impact of financialization on unions is typified by the struggles waged at the transnational airline catering company Gate Gourmet, where the company’s acquisition by the private-equity firm Texas Pacific Group set management on a direct collision course with catering workers and their unions.

Gate Gourmet, the catering division of SwissAir, was bought by Texas Pacific Group in the wake of the airline company's bankruptcy in 2002 - the same year Texas Pacific Group, together with Bain Capital and Goldman Sachs Capital Partners, acquired the global fast food chain Burger King. Gate Gourmet's then CEO welcomed the sale with these words: "Through a combination of strategic acquisitions and organic growth, Gate Gourmet should experience continued success."

At the time of its acquisition by Texas Pacific Group, Gate Gourmet employed over 25,000 workers in 29 countries with 140 flight kitchens. For 2005, the figures are 22,000 workers and 109 flight kitchens. The path to "organic growth" at Gate Gourmet began with a meticulously planned assault on trade unions beginning with the well-known struggle at Heathrow Airport in the UK, which was kicked off by the company stealthily hiring hundreds of contract workers in a restructuring program centered on mass dismissals and a dramatic degradation of employment conditions. The anti-jobs, anti-union offensive then moved to Germany's Düsseldorf airport, where (at the time of writing in late February 2006), members of the IUF-affiliated Food and Allied Workers' Union NGG have been on strike since 7 October 2005 over the company's refusal to negotiate wages and compensatory measures for increasingly arduous working conditions.

In a clear challenge to Germany's established collective bargaining framework, the company has been demanding enterprise-level concessions on working hours, holiday leave and shift pay despite the fact that these are negotiated at industrial sector level. A compromise negotiated between the union and local company management in early December 2005 was unilaterally scrapped by Gate Gourmet corporate headquarters, leaving the workers no alternative to continuing with their strike. There are now indications that the anti-union offensive is targeting other Gate Gourmet sites in Europe.

Click the following link to read the full article, FINANCIALIZATION: NEW ROUTES TO PROFIT, NEW CHALLENGES FOR TRADE UNIONS.