Union deal saves Interstate Bakeries from piecemeal sell-off

Nov 14, 2008 (The Kansas City Star - McClatchy-Tribune Information Services via COMTEX) -- IBC | Quote | Chart | News | PowerRating -- Members of the International Brotherhood of Teamsters have approved changes to the union's contract with Interstate Bakeries Corp., saving the bankrupt company from being sold off piecemeal.

The more than 8,500 Teamsters who work for the Kansas City-based baking giant agreed to some cuts in salaries and commissions and to shoulder more of the cost of health insurance as a way to help save the company and their jobs.

Without delineating numbers, the union said Teamsters working for Interstate had "overwhelmingly" approved the modifications.

"IBC Teamsters were faced with a difficult decision, and they voted loud and clear to preserve good American jobs at Interstate Brands Corp.," Jim Hoffa, Teamsters general president, said in a statement. "The newly ratified agreement paves the way for the company to exit bankruptcy as a stand-alone entity, which is the best opportunity for our members to keep their jobs."

Executives with Interstate Bakeries did not respond to requests for comment.

Interstate, which has been mired in bankruptcy since September 2004, last week sent creditors its plan of reorganization. If they approve the plan and certain outstanding issues can be resolved by the bankruptcy court, company lawyers said, Interstate could shed bankruptcy court protection by the end of the year.

New union agreements granting the company additional concessions are a requirement of Interstate receiving about $600 million in post-bankruptcy financing.

The financing agreement with New York private equity group Ripplewood Holdings and other lenders and investors will expire Feb. 9 if Interstate has not emerged from bankruptcy. If that financing goes away, the company has said, it will have to liquidate.

Keys to the new union agreement were changes that allow the wholesale baker to significantly alter the way it delivers such iconic brands as Wonder Bread and Twinkies. Those changes will make some employees salespeople and some employees delivery people. They will also allow for direct delivery to warehouses for some large customers.

The company has said the new delivery system will provide significant savings.

According to documents sent to Teamsters with their ballots, the new delivery system could not be rolled out to the entire company before Aug. 1, 2010, and only after it was successfully tested in an area "not represented by Teamsters."

In exchange for the concessions, the company will set up a stock appreciation equity-sharing program that will give the Teamsters and its three other large unions an equity stake in the company if it grows in value.

The company has declined to provide details on the program. But documents sent to Teamsters with their ballots said that in exchange for concessions, Teamsters will participate in the equity-sharing plan and "receive 7 percent of the company's total equity."

The documents also say that as the company hits certain earnings levels, the concessions will be incrementally unwound and Teamsters will eventually see pay increases.

During its four years in bankruptcy, the company has closed nine bakeries and shed 10,000 jobs. But the agreement said Interstate would consider returning to the Southern California, northern Washington and Michigan bread markets, adding that if it were to return to any of those markets, jobs previously held by Teamsters would again go to Teamsters.

"During negotiations, our priority was to protect Teamster jobs, achieve value for our sacrifices and put the company in the best position to grow. Our members knew this agreement was, by far, the best choice in order to provide IBC with a sound financial footing," Richard Volpe, a Teamsters official, said in its release.

"We have confidence in Ripplewood Holdings and believe that we can work together with the new management team at IBC so that it may survive and rebuild."

To reach Eric Palmer, call 816-234-4335 or send e-mail to epalmer@kcstar.com.

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