Buyers Warned About Tougher Union Bargaining: Extra Diligence Is Advised on Pensions, Medical Costs When Workers Are Critical

Acquirers that buy unionized companies in the next several months may be dealing in the face of more aggressive negotiating positions by labor unions and should be ready to handle them. The advice from an expert at PricewaterhouseCoopers is to try to have key issues in contracts that expire or are about to expire settled in the period between announcement of the deal and closing so that the new owner can avoid having controversies plague the target just after completion. The stakes are highest, Peter Gehnrich commented in a recent issue of the firm’s Issues Update, when the workforce is “critical to the target’s ongoing operations.” Dealing with unions and contracts traditionally have been tricky issues in m&a. In the past they have invariably centered on the question of whether the buyer had to inherit a union contract and retain the workforce intact or whether it could install an entirely new workforce. Outcomes have varied from case to case, according to a litany of decisions by the courts and the National Labor Relations Board (NLRB). The general matter of post-deal downsizing also can be important, whether the target is unionized or non-union. The coming contests, Gehnrich said, will spring from a variety of adverse pension and health care developments that will trigger more aggressive demands from unions on employers. Along with “routine demands” for higher wages, he said, unions will be seeking hefty contributions to repair multi-employer pension plans and restore and health and welfare benefits while fighting employer efforts to “pass along” greater medical benefit costs. In turn, employers may counter by such proposals as dropping high-cost operations and more outsizing. That may put newly minted buyers in the center of the fight. “The continued economic pressures on benefit costs may cause unions to flex their negotiating muscles once a deal closes,” Gehnrich wrote. “To avoid being threatened with costly work stoppages, companies looking to buy businesses with unionized labor forces should take particular care to ensure that all expired or soon-to-expire contracts are resolved during the transition period between the announcement and closing of a deal.” If the unionized workforces are “critical” to the business, buyers should “step up their diligence efforts to explore the funded status of union plans” to which the target contributes. It is possible to obtain publicly available information, even though it may be somewhat outdated, to check the funded status of union plans. Public announcements of bargaining settlements between the union and other employers “may provide insight into the possible intransigence and negotiating ability of the union.” “Buyers and their advisers should assess these issues and seek solutions that fit their strategic business objectives,” the Issues Update article continued. “As they contemplate workforce-related strategies, such as downsizing the target’s unionized workforce or possible plant closures, acquirers should also assess the magnitude and impact of potential contingent liabilities for union obligations, and develop strategies to avoid them. “For example, systematically managing both the timing and the magnitude of downsizing efforts can often soften, if not eliminate, the possibility of being assessed contingent liabilities for having decreased a union workforce.” Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com