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Wednesday, 27 June 2007 00:00

Unrealized dreams: Much heralded 1999 agreement fails to deliver for workers

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When Howard Taylor heard what workers at Blue Ridge Paper Products were being offered as part of a pending buyout of the mill in April, he realized his work was cut out for him.

As president of the largest union post in Western North Carolina, Taylor had the livelihoods of more than 1,000 families riding on the negotiations. Ask for too much, it could kill the deal, leaving the future of the struggling mill and its workers on shaky ground. At least that was the party line touted by company management.

But Taylor believed workers could and should demand more. The challenge, it seemed, would be convincing workers to stand up, take the risk, and call the bluff of the deep-pocketed investors who controlled the mill. After all, that’s what unions were made for.

Taylor saw the issue simply: if the mill sold, the profit should be split fairly with the mill’s employees, who owned 40 percent of the company’s stock. Instead, the mill’s financial backers, a venture capitalist firm in New York called KPS, demanded the lion’s share.

The union vote could make or break the deal. Workers had the power to hold up the sale of the mill and demand a bigger share of the proceeds. But it was a hard sell. Workers saw a bird in the hand — a $20,000 check each for their stock, a $750 cash bonus and a 3 percent raise over two years. In exchange, they had to give up profit sharing and their stake in company stock.

Take or leave it, management said. Leave it, and the sale is off and no one gets anything, the company threatened. The mill will be left to limp along, saddled with debt and an uncertain future, going it alone in the rapidly consolidating cardboard milk and juice carton industry.

“That is what the company put out to scare everybody,” Taylor said.

 

One last chance

Workers had a lot riding on their vote to either accept the buyout terms or hold up the sale and demand more. Employees became 40 percent owners in the mill in 1999 when the former owner, Champion International, put the plant up for sale. Prospects were slim for the aging paper mill, and workers had little choice but to rally around the idea of saving their own jobs, sacrificing wages in exchange for part ownership.

Workers needed someone with capital to partner with, however, and found the venture capitalist firm KPS willing to put up $33 million. Workers, meanwhile, took a 15 percent pay cut, agreed to a wage freeze for seven years, gave up vacations and benefits — for a total investment of $160 million. In exchange, they were promised profit sharing and given shares of company stock. Workers approved the deal with a vote of 927 to 600.

Now, eight years later, the 1,300 workers at the main mill in Canton and satellite Waynesville plant have made only a pittance in profit sharing, with the mill losing $213 million over the past eight years and showing profits only a few quarters. Workers watched as management took out loan after loan to keep the mill afloat, devaluing their stock and eating up any hope of profits with interest on the debt.

Workers packed the union hall for meetings last month to learn about the terms offered in the buyout. A rep from the United Steelworkers in New York — which handled the negotiations — gave a pitch in support of the deal. But when it was Taylor’s turn, he spoke against it.

“I was on the buyout team in 1999 so I know what we gave up. Every employee gave up $8,000 per year in wages and benefits. A lot of people just look at today and don’t look at what they gave up,” Taylor said. “That’s the difference in the two camps.”

For those who were there in 1999, they struggled to make the mortgage, car payment and kids’ college tuition on a suddenly smaller paycheck. If workers wanted to reclaim the wages and benefits they gave up, it was now or never. Once they relinquish their stock and profit sharing, their leverage would be lost.

“We’re still $2 an hour behind, a week’s vacation behind, six holidays behind and $800 in 401K matching behind. This was the last chance,” Taylor said.

The next time the workers will have a crack at a pay raise is 2009 when their current contract expires. Their only bargaining power will be the threat of a strike. It was workers’ last hope at a return to 1999 wages and a decent payout on their stock.

 

Getting the shaft

When the final vote was held two weeks ago, the majority of mill workers ultimately weren’t willing to flex their union muscle, but instead approved the buyout as offered by management. When the buyout is finalized in coming months, workers will walk away with just a fifth of what they put in — 18 cents on the dollar for their stock to be exact. KPS, on the other hand, will nearly triple its investment.

“I think it was a raw deal,” said John McClarrin, who has worked at the mill for 32 years. “I thought we could have got more.”

Mill worker Ronnie Turner, 58, called KPS a “bunch of thieves.”

“We didn’t get nothing,” Turner said. “KPS is going to make a wad of money. We came out on the short end of it.”

Workers have plenty of choice words for KPS these day. The “slick kitties” in New York, as Mike Green calls them, took mill workers for a ride. Green, who has worked at the mill for 37 years, bought into the idea of wage cuts and freezes in exchange for stock and profit sharing back in 1999. But it didn’t work out like they hoped.

“There’s a lot of people who pinned their hopes and dreams on having a pretty good nest egg and now it’s gone,” Green said. “They all said we would come out smelling like a rose. That rose has turned into a wilted weed. All we got was to keep our jobs.”

But opinions of those on the streets of Canton were split, just like the vote. For some, simply keeping their job was good enough.

“As long as they pay me every two weeks,” said Ray James, who has been at the mill for only four years. James, like many workers, wasn’t willing to take the risk and voted “yes” to the terms.

“If somebody didn’t come along and buy it, I don’t think we would be here,” said James.

In the end, the majority of workers weren’t willing to take the chance.

“Where else are you going to find a job in this area for what these people make?” asked Gerald Trantham, a long-time mill worker.

 

Workers still don’t know

Workers who came on board after the 1999 wage cuts don’t see what was given up. They only see what they are getting now — good pay, good benefits and a nice sized check for their stock. Why take a risk by voting “no”?

While newcomers have been blamed for swaying the vote, it’s an imperfect assumption. Take Bennie Robinson, for example, a 26-year-old who’s worked at the mill for five years but was among the younger workers who voted “no.” Robinson thought the workers deserved more for their stock, and he didn’t want to give up profit sharing — not now. The mill’s prospective buyer, a New Zealand company called the Rank Group, has been gobbling up market share of the cardboard drink carton industry in the United States and globally over the past 18 months, amassing a drink carton empire. Blue Ridge, a major U.S. carton maker with big customers like Minute Maid, was on his list of acquisitions. The Rank Group intended to make a profit, and Robinson wanted in.

But Robinson also didn’t like the uncertainty of the stock offer. Workers were told they would likely get $6.49 a share for their stock, but it’s not guaranteed. It’s only a verbal commitment, not inked in a contract nor a condition of the union’s vote.

“That’s the twister right now,” Robinson.

Robinson compared it to signing a contract to buy a car without knowing the price. The arrangement has irked many workers. Mill worker Mike Green said the workers bought a pig in a poke.

“I would have liked to know a lot more,” Green said.

The mill’s buyer is offering $338 million for the mill. Of that, $213 million goes to pay off the mill’s debt. That leaves $125 million for KPS and the workers to fight over.

“I can see people being disappointed, but the reality is the company is worth what somebody is willing to pay for it,” said CEO Rich Lozyniak. “This was the only viable offer to buy the company.”

Lozyniak sides with the workers who are simply grateful to still have their jobs.

“This company is still here today when probably one-third of the paper workers in America have been laid off,” Lozyniak said. There have been 100 paper mills in the U.S. and Canada close in the last decade, Lozyniak estimated.

The uncertainty in what workers will get for their stock boils down to how much the company makes or loses between now and when the deal finally closes, possibly several more months from now. If the company loses money, that’s more that comes off the top of the sale pice and less that the workers get for their stock — and vice-versa if the mill makes money.

“That last dollar made or not made goes to the shareholder,” Lozyniak said.

 

Deal or no deal

Mill worker Ronnie Turner accused KPS and mill management of “scare tactics,” threatening that the mill would go under if employees didn’t approve the sale. It was enough to make workers think twice. Perhaps the company was telling the truth and this really was the best deal they could get, thought Mitch Nelson, a mill worker for two and a half years.

“When it comes down to it, people have to have a job,” Nelson said. “I think it was a good deal. The way we were told is our backers were going to back out if we didn’t approve the sale.”

These are precisely the scare tactics Turner was referring to. If workers voted no, KPS would walk away from the mill. KPS had long wanted out. They typically flipped their investments within a few years. The $33 million they put into the mill in 1999 was the longest they’d held an asset. KPS threatened to pull their $33 million and walk if workers didn’t approve the deal.

The mill would have been forced to borrow money to buy out KPS’s share of the company. It would add to the mill’s already steep debt of $213 million, further devaluing both the mill and workers’ stock.

Or so the theory went among those backing the buy-out. To Taylor, it sounded ludicrous. KPS wouldn’t walk away from the mill with nothing but their initial investment to show for it. They would rather make something than nothing. If KPS wanted out bad enough and saw this buyer as their only hope, KPS might have settled for $70 million — still twice their 1999 investment. The extra money split among workers would have provided an extra $10,000 each for their stock. Now we’ll never know, Taylor said.

The vote is understandable, according to Bob Mulligan, an economics professor at Western Carolina University.

“An individual worker is always going to be very risk averse and not want to make tremendous gambles with their income and future income,” said Mulligan.

What surprised Mulligan, however, is that a third of the union workers at the Canton mill didn’t vote. Mulligan doesn’t think apathy is to blame.

“It concerns the workers very, very directly,” Mulligan said. “It would be tough to avoid. You couldn’t not hear about it even if you didn’t want to.”

Perhaps those who didn’t vote were simply too torn to make a decision.

 

Canton voted ‘No’

If it had been up to the workers solely at the Canton mill, the vote would have failed. But Blue Ridge Paper has one satellite mill in Waynesville and four plants in other states. Canton is the place where paper is actually made — from raw wood chips to cardboard for milk and juice cartons. At the Waynesville plant, a slick coating is applied. At the out-of-state plants, the cardboard is folded into cartons and painted with words like Minute Maid.

At the Canton mill, workers voting “no” outnumbered the “yes” votes 299 to 285. But at the Waynesville plant, “yes” outnumbered “no” 106 to 43. And the other locations weighed in with 258 in favor, and a mere 15 opposed.

The overall vote showed two-thirds of the workers supported the buy-out terms.

“In a presidential election, that is what you would call a landslide,” said CEO Lozyniak.

There’s several possible explanations for the disparity in the vote among the main mill in Canton and the satellite plants. For starters, the other locations don’t have a union leader like Taylor who was fighting for more. At the other locations, the union presidents backed the deal.

Workers at the other locations don’t make as much as at the main mill in Canton. Perhaps workers at the other locations felt they didn’t have the same leverage as the higher-paid workers in Canton, or were more willing to settle for what they were offered.

Taylor had another theory. The union’s contract allows Rank to close one of the satellite plants where board is folded into cartons. Taylor surmised they voted “yes” to look cooperative so their location wouldn’t be the one to get closed.

When United Steel Workers came to Canton for the union hall meetings, they knew they didn’t have Taylor’s support. Taylor had stalled them for six weeks, holding up the vote while trying to negotiate better terms for his workers.

As crunch time approached, the Steel Workers representative in New York leading the negotiations summoned a conference call with the union presidents from each Blue Ridge mill. All the presidents committed their support except Taylor.

Taylor managed to push the company for a little more in the meantime. The first offer that came down from KPS in April would give workers a 1 percent raise if they gave up profit sharing. Taylor practically hung up the phone.

A new offer followed shortly: a 3 percent raise over two years, with 1 percent this year and 2 percent next year. Taylor countered with a 3 percent raise both this year and next.

The company’s next counter-offer was slightly better. A 2 percent raise this year and a 1 percent raise next year. It was still a 3 percent raise over two years, but it’s better to get the 2 percent up front. Plus, the company threw in a one-time $750 cash bonus. The company then dug in its heels, forcing a vote on what it called its final offer.

 

Cat-bird seat

The union vote was more than symbolic. A “no” vote by the union had the power to hold up the sale. The company couldn’t do away with profit sharing without workers’ consent. Rank wasn’t buying until profit sharing was over.

Workers could have held up the deal with a “no” vote until KPS agreed to share a satisfactory cut of the profits with workers.

Workers had a second trump card as well, thanks to a clause demanded by the union in the most recent contract struck between workers and the company in summer 2006. If workers didn’t approve of a new buyer, their contract with the company was null. Such a vote would immediately force a new buyer into negotiations with the union for a new labor contract.

“The threat is you don’t come to an agreement and you have a strike at a mill you just bought,” Taylor said. “We had KPS pretty well in our hands if we had exercised our power.”

During the negotiations, an article came out in the Wall Street Journal exposing the latest bargaining tactics employed by United Steel Workers. Banging the table and threatening a strike was no longer the order of the day. Unions had moved into Wall Street circles, holding up acquisitions and mergers and otherwise affecting a company’s stock price to get what they want from executives, the article detailed.

The timing was impeccable. It scared both management and KPS. It’s exactly what could have played out at Blue Ridge. Only it didn’t.

“We were sitting in the cat-bird seat I thought,” Taylor said.

Some workers didn’t think so, however, like Ray James, who’s been at the mill for just four years. James thought it was a take it or leave it deal, since KPS owned 60 percent of the stock.

“When you only own 40 percent of the stock, you don’t have no say anyway,” James said of the workers.

Taylor said he doesn’t hold anything against the Rank Group.

“I don’t have any animosity against the new owner,” Taylor said. His beef is with KPS and mill management. Taylor thinks management has taken more than its fair share over the years. While the workers were living under wage freezes, management found the money to give themselves raises and bonuses. Taylor is still bitter about a $630,000 yacht the company CEO Rich Lozyniak bought less than a month after the floods of 2004 that knocked the mill off-line and covered machinery in muck. While workers were digging out and trying to get the mill operational again, Lozyniak was at a boat show making his purchase.

“The timing was terrible,” Taylor said. “We were all here trying to get the mill back up and he was off buying a yacht.”

The Rank group can’t cut any union jobs until 2009, when the workers’ labor contract expires and a new one is up for debate. The billionaire owner of the Rank Group, Graeme Hart, doesn’t have a track record on union deals, giving Taylor little indication what they will be up against.

“It could be good, it could be bad,” Taylor said.

 

Future of unions

A few workers are mad at the union for not doing more. If the union couldn’t get help workers at a crucial time like this, Turner questioned whether the union has a future.

“We ain’t got no use for the union. It’s not only here. It’s all over the country,” Turner said.

But mill worker Mike Green said he doesn’t blame the union.

“To a certain extent, their hands are tied,” Green said. Besides, Taylor tried. He couldn’t help how workers ultimately voted.

While workers failed to stand up and bargain for better terms in the buyout, Taylor doesn’t see the union’s power as fading. Blue Ridge Paper has an extremely high union buy-in: 1,071 members between the Canton and Waynesville mills out of 1,146 workers who are eligible to join. (Salaried workers aren’t eligible.)

The future of the union at Blue Ridge hinges on the next generation of workers. Like the rest of America, the mill workforce is full of babyboomers on the verge of retirement. The mill expects 40 percent turnover in the next five years.

So far, young workers apparently see a value in joining the union. There have been 128 workers hired in the past 18 months since Taylor has been union president, and every one of them joined the union.

“That just kills the company,” Taylor said.

Mulligan, the WCU economics professor, said Blue Ridge has both an impressive rate of union membership and an impressive record with new hires joining.

“It really couldn’t be much better than that. I would draw the conclusion that the union is providing a high level of service for the workers,” Mulligan said.

But that’s not the case nationwide.

“The overall percentage of the workforce in unions has gone down every year since the 1970s,” said Mulligan. “People at the individual level don’t see the value in collective bargaining and union representation for a lot of jobs. I think unions have become a lot less assertive and powerful as unionization rates have gone down.”

But that won’t happen at Blue Ridge if Taylor can help it. Every new hire goes through an orientation with the union where Taylor gives them the pitch. It’s no coincidence that jobs at Blue Ridge are the highest paid manufacturing positions in Western North Carolina, or that workers get four weeks of vacation after 10 years.

‘The company doesn’t give away anything. They don’t give away holidays. They don’t give away good health care. They don’t give away vacation. The union has to fight for everything,” Taylor said. “I think that’s why Blue Ridge has a high standard of pay and our health care is still probably some of the best in the industry.”

But the union does more than bargain for wages and benefits come contract time. For example, following the floods of 2004, workers needed hepatitis shots to protect them while cleaning raw sewage off the mill’s flooded equipment. The company paid for the first round, but balked at paying for the six-week booster required to make the vaccination stick.

“We finally shamed them into doing it,” Taylor said.

This week, Taylor is threatening litigation over the termination of a union officer from the mill, and fighting with the company about a group of workers suddenly switched from day shift to nights.

Union dues are $17.55 every two weeks — just shy of the average hourly salary. “The best money you ever spent,” Taylor said.

 


What the buyout means

What workers contributed: $160 million in wage cuts and freezes over seven years in exchange for stock shares and profit sharing

What workers get: $33 million for their stock

Workers also get: 3 percent raise to relinquish profit sharing

What KPS contributed: $33 million cash

What KPS gets: $88 million cash

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