Interstate Bakeries offers part ownership to unions
By Eric Palmer The Kansas City Star October 31, 2008
If creditors approve Interstate Bakeries' reorganization plan and the court resolves any outstanding issues, the wholesale baker could be out of bankruptcy by the end of the year. The two most contentious parties in the long-running bankruptcy of Interstate Bakeries Corp. have decided it's better to make up than to break up.
If the peace accord is approved, organized labor could end up owning a slice of one of the nation's largest bakers.
During more than four years in bankruptcy, the International Brotherhood of Teamsters, whose members sell and deliver Interstate's Wonder bread and Hostess Twinkies, has been the most vocal critic of Interstate's restructuring proposals. Officials once said the union would rather see the company go out of business than to work with its current management.
The Teamsters, Interstate's largest union, a year ago went so far as to break off communication with the wholesale baker in a fight over additional concessions Interstate wanted.
Instead, it decided to negotiate contract changes directly with Ripplewood Holdings, the company that has agreed to buy Interstate out of bankruptcy.
But a revised reorganization plan filed in court Thursday by Interstate proposes that the employees of its four largest unions get an ownership stake in the reorganized company, assuming it grows, in exchange for agreeing to additional concessions.
The "employee equity sharing plan," while not described in detail, would give most union employees "stock appreciation rights" similar to those being made available to executives like CEO Craig Jung, whom the union earlier vilified.
It was, in fact, the Teamsters that floated the idea with Ripplewood of union employees sharing in the success of the company if they consented to further cuts in compensation.
"It was a proposal by us, a subject the union raised," Frederick Perillo, an attorney for the Teamsters, said Thursday.
Perillo confirmed the deal after a hearing in which Judge Jerry Venters approved the language of the proposed reorganization plan and the disclosure statement that creditors will review in determining whether to vote in favor of the plan.
Documents outlining Interstate's reorganization plan are expected to go to creditors beginning Thursday. If creditors approve it and the court resolves any outstanding issues, the wholesale baker could be out of bankruptcy by the end of the year.
While union leadership has given its blessing to the proposed contract modifications, Interstate's union members have to vote on the changes that anticipate the employee equity sharing plans.
Company officials declined to give specifics about the equity sharing plan other than to say that it would apply to the four largest unions and that those unions represent the vast majority of Interstate's union employees.
The Teamsters represents about 8,500 of Interstate's 22,000 workers. The Bakery, Confectionery, Tobacco Workers and Grain Millers Union represents about 8,200 Interstate workers. Officials with the bakery union were unavailable for comment.
The company declined to outline the plan. But like appreciation rights, an equity stake in the company would depend on the company growing.
Giving union employees an equity stake for concessions is not unheard of and was a popular tool among the airlines during a downturn in the 1980s. Assuming the reorganization is approved, the true test of how well Interstate and its unions can get along will be in the marketplace beginning next year.
Once the largest wholesale baker in the U.S., Interstate has closed nine of 54 bakeries and more than 300 outlet stores and sliced its work force from 32,000 to 22,000 since filing bankruptcy in September 2004.
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