New Labor Strikes Deals With 'Private Equity Guys'

The Steelworkers union has an investment banker working down the hall from its president. A Service Employees International Union organizer is becoming an expert on leveraged buyouts. The Machinists are loading up their research department with MBAs.

The embattled labor movement is learning to think like capitalists, but not by choice. As burgeoning private equity funds bought U.S. companies last year worth more than half a trillion dollars -- a tenfold increase in only three years -- unions are shoring up their diminished bargaining power to try to negotiate worker-friendly financial deals with these new masters of the universe.

"In the union, we learn everything flat on our butt," said Ron Bloom, in-house investment banker for the United Steelworkers of America. "We get hurt and we say we're not going to get hurt again."

Strategies are evolving as fast as the deals. The strongest unions have traded concessions for a share of eventual profits and for limits on how much money investors can take out of a business. Others have formed alliances with investors who honored labor commitments, becoming finders for potentially lucrative deals elsewhere.

The Steelworkers are labor's most seasoned financial dealmakers, going back to the 1980s and 1990s, when the industry shed more than 400,000 U.S. jobs. "Companies were going bankrupt and putting themselves up for sale and the private equity guys were the only ones who showed up," Bloom said.

Now private equity funds are swinging multibillion-dollar deals in coal, textiles, food processing, hotels, real estate -- every sector of the economy. Pooling money from the super-rich and financial institutions, the funds buy companies on the cheap and mortgage them heavily, aiming to restructure and sell them in three to five years at profits that far exceed those in the stock market. Because wages and benefits are the biggest costs in most companies, the strategy puts maximum pressure on workers, which is where unions come in.

"We want these investors to make a lot of money," said David McCall, a Steelworkers negotiator. "We just want them to view these companies as long-term investments because our workers obviously have long-term investments. It's their lives."

Unlike much of corporate America, more than a few wealthy investors have emerged from such deals with nice things to say about unions.

"We found that if you approach the union with a realistic request -- in that you are not cutting them just to pay interest or just so management can live in the lap of luxury -- and if you have a quid pro quo so that they can share in the profits, you get along reasonably well," said billionaire Wilbur L. Ross Jr. of his deals in steel and textiles.

Unions, which represent a record-low 7.4 percent of private-sector workers, are hardly dealing from a position of strength. Often their dealmaking serves to only limit inevitable losses, particularly in companies already in serious financial distress.

The tradeoffs were on clear display last month when DaimlerChrysler announced the sale of its Chrysler division to private equity fund Cerberus Capital Management.

Barely a month earlier, United Auto Workers President Ronald A. Gettelfinger characterized private-equity bidders as "strip and flip artists" and vultures "hovering overhead right now." He told them in so many words to buzz off, saying the UAW liked Chrysler where it was.