News
Negotiating agenda to tackle Private Equity
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Trade unions need a whole new set of negotiating guidelines to deal with Private Equity buyouts of companies they organise - that was a key point to emerge from a global union workshop on private equity in Nyon, Switzerland. Global unions will also continue to press the PE groups to sign up to global principles that recognise their responsibility in the companies that they own for labour rights and collective agreements. “The Billionaire Buyout Guys,” is how the SEIU’s Stephen Lerner described the PE bosses - just ten of them are collectively worth $20bn. They have become incredibly rich from swallowing up companies with borrowed money and loading their victims with debts and fees - and often end up paying less tax than the people who clean their offices. Just two mega buyouts in the United States - Equity and HCA - racked up fees of $880m for the billionaire buyout guys. “We have to have a global strategy,” Stephen told the workshop, which was jointly hosted by the IUF, IMF and UNI global union. In spite of the global credit crunch PE funds have recently attracted $263bn of buyout money from investors - who often include workers’ pensions funds. To produce the high returns demanded from their new private equity owners and pay off takeover debts and PE fees, companies often cut jobs, working conditions and pensions as well as other long term commitments like research and development. The PE aim is often to slim down a purchase with a view to selling it on with five years at as high a price as possible. Sometimes PE groups assemble a group of smaller companies to make a bigger company. The aim is always to pump a maximum of cash out of the investment at all stages. |
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Negotiations need to change, said the IUF’s Peter Rossman. Unions have to press for information on debt levels of companies facing a PE buyout, the investors’ list and the fees to be paid. They need to get savvy on debt to earnings ratios, dividends to earnings ratios and watch out for “special dividends” that often add further debt burdens to bought out companies and provide more income to the billionaire buyout guys. Unions need to get involved early. Negotiators have to press for full disclosure of the financial arrangements including details of debt financing, business plan, cash flow management and the exit strategy that PE groups have for the company - when they sell it on or take it public again in three or four years time. And unions need to network their experiences of dealing with Private Equity groups. “We need to build up a body of experience on collective bargaining with PE and exchange our results - successful bargaining strategies need to be more widely known,” said Peter. “We need a practical network to consult each other in collective bargaining,” said Jane Barker, of Unite UK. |
Company pension funds are particularly vulnerable in a PE buyout where the aim is to generate as much cash from a victim company as possible. Keith Hazlewood from GMB UK reported on the battle to save a defined benefits pension fund at United Biscuits now owned by the Blackstone PE group.
The PE group are looking to squeeze £4m savings from the pension scheme by cutting benefits and contributions.
“Our shop stewards see this as nothing more than greed on the part of Blackstones,” he told the workshop.
In the Boots buyout pension fund trustees were able to protect the fund by insisting on a cash injection from KKR.
Unions have to do more to involve pension trustees in both the funding of PE groups and in their corporate behaviour towards company pension schemes.
“It should no longer be a blank cheque,” said Michael Laslett, who works for the unions’ capital stewardship group based in London. He wants the funds to negotiate with PE groups over their behaviour towards bought up companies before adding to their buyout war chest.
SEIU members in the United States alone are involved in funds that will provide their pensions worth a trillion dollars - and many of them invest in PE groups for the higher returns they promise.
Historically however PE has not delivered returns above the stock market, said Kristian Weise of CSI Belgium. “It’s not the golden goose that pension funds think it is.”
UNI General Secretary Philip Jennings highlighted the growing backlash across the world against the excesses of private equity groups. Governments are increasingly discussing raising the tax on PE, regulators are looking at the issues they raise and, in the UK, the groups have launched an initiative to set up voluntary guidelines to head off legal controls.
“A year ago Private Equity was unchallenged and it’s because of the trade union movement that have managed to drive them out of the shadows and attract attention. As unions we can make a difference.”
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Peter Rossmann lUF
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Stephen Lerner SEIU
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