Editors' note: This story has been updated to clarify Apollo CEO Leon Black's stock holdings. The company had declined to comment for this story before publication.
When Apollo Global Management bought Momentive Performance Materials, a chemical factory in upstate New York, in 2006, it administered a lesson in modern-day economics at what had long been one of the biggest and most stable employers in the Albany area.
Private equity companies like Apollo make money through debt. In a leveraged buyout, a firm hones in on a company, often one that is publicly traded, and struggling, and takes it private. The acquisition is financed by borrowing against the company itself. The goal is to take the company public again, ideally in three to five years, and net a profit for the investors and the firm. The debt remains with the company.
The debt load can translate to major belt-tightening at the acquired company. The buyer is looking to increase productivity, reduce inefficiencies and, as jargon would have it, create synergies. That often means a private equity firm will buy up a few companies in a particular industry, mash them together and eliminate the overlap. That often means eliminating jobs.
Whether private equity firms, on average, create or destroy jobs is a matter of debate. Buyouts by private equity firms have a generally positive effect on the financial performance of the acquired companies but are “associated with lower employment growth,” according to a 2008 report by the Government Accountability Office. A more-recent academic paper found that post-buyout, companies see increases in both layoffs and jobs created. On balance, the authors write, there is a 1 percent net loss of jobs when a company is taken over by a private equity firm.
But the loss of jobs is often not the only toll for workers caught in the middle of a leveraged buyout, as Momentive workers learned soon after Apollo purchased their company from General Electric. (GE is a part owner of NBCUniversal.)
Apollo cut the wages for most of the production and maintenance workers at its Waterford plant. The National Labor Relations Board investigated and tentatively concluded that the company had violated the contract. But with other locals rallying behind a new contract offer, hundreds of the production workers were forced to accept drastically reduced pay.
In the months after the contract vote, the stress level at the plant was through the roof, said one worker, who, like his colleagues, spoke on condition of anonymity because he feared retaliation from company officials. His doctor treats lots of Momentive workers, he said, “and she says Xanax should be in our drinking water.”
The anxiety “was affecting my stomach,” another worker said. “I can’t eat. I’m drinking more than I’ve ever drank in my whole life.”
Since the wage cuts, workers said, attracting qualified hires has been difficult. The new contract, they said, has brought more responsibility for less pay. They alleged that new hires are asked to perform dangerous tasks with inadequate training. And longtime workers are taking second jobs to make up for lost pay, several men said.
“There’s a guy near me who has a part-time job at Wal-Mart,” one man said, adding that in his unit people work seven afternoons in a row, with one day off, then seven straight days of midnight shifts.
“He often says he’s only got three hours of sleep” before returning to work, he said.
“This is suicidal,” another man said.
Momentive, in a written statement, says it “seeks to attract a world-class workforce through competitive compensation and benefits, while providing a safe work environment.” The company also notes that since 2006, when Apollo took over, the Waterford site has shown improvement on two of OSHA's key measures of worker safety.
Still, the union has raised safety concerns. For years, the Waterford plant was part of a special program at the Occupational Safety and Health Administration that honors workplaces with exemplary safety and health records and procedures. Waterford was a VPP Star site, the highest rank within the Voluntary Protection Program. The benefits of the VPP star aren’t just a nice flag to fly in front of the factory. Once in the program, the site is exempt from random checks by OSHA inspectors.
In late 2010, the union withdrew its support for the VPP program in Waterford, which is required for the certification. Such a loss of union support is rare, according to OSHA. In January 2011, the plant lost its VPP status.
That withdrawal from the program was a long time coming. In November 2008, the membership of Local 81359 had sent a letter to Momentive’s management, saying the company’s “actions and tactics have created this hostile work environment and we fear for the health and safety” of the plant workers.
After that warning, OSHA inspectors found eight serious violations at the plant over several months in 2010, each resulting in a $4,500 fine.
One of the violations involved “an uncontrolled release of sulfuric acid,” exposing employees to “inhalation and burn hazards.” Momentive did not furnish employment “free from recognized hazards that were causing or likely to cause death or serious physical harm,” according to the violation notice. (Four of the violations were later “deleted” by the agency during discussions with the company of fines and penalties.)
“The night of the sulfuric acid release there were some young new guys there, and a guy who had been there for a long time,” said Dominick Patrignani, a union official. “He kept people from getting burned. We would have been reading about it in the obit section, possibly.”
“The knowledge base of the people they’re bringing in is nothing like we’ve ever seen before, because you can’t get highly skilled workers at $14 and $15 an hour.”
On May 25, 2011, two workers on the night shift were severely burned in a flash fire at the plant. In the early morning, the men were preparing to clean some equipment, according to one worker with knowledge of the incident. But when they started to take apart a piece of pipe, gas somehow ignited. The men were severely burned and were airlifted to the Burn Center at nearby Westchester Medical Center. Both survived, but now face a long recovery.
“This whole event could have been prevented,” Patrignani said, adding that he had raised safety concerns about that area of the plant to the operations manager the week before the accident.
In November 2011, an OSHA investigation of the May accident resulted in $81,000 in additional fines for Momentive, for 10 serious violations and one repeat violation. The company is appealing the fines and OSHA has yet to issue a final determination.
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For Momentive’s Waterford workers, the wage changes are a done deal. A group of workers filed additional complaints with the National Labor Relations Board, but those went nowhere. Some organized a vote to decertify the union — essentially, to fire the union as their representatives — but that failed.
They have received their settlement checks, and most are resigned to the drastically lower pay, new responsibilities and the tension. But resignation doesn’t mean the living is easy.
I met with one Momentive worker, his fiancée and their young daughter at a Dunkin’ Donuts off Route 9. When I mentioned that someone told me I should talk to the wives if I want to get the real picture of the pay cuts and their impact, she nodded. “We almost lost him, you know,” she said. “He had a heart attack from the stress.” He was now seeing a therapist and a psychiatrist, and was taking multiple anti-anxiety drugs, she said.
Over coffee and a box of doughnut holes, the couple laid out what they’ve been through since the pay cuts took $400 a week out of his paycheck.
First they got jammed up on bills and they cut down to one car, a hardship in an area where you can’t hail a cab or catch a bus, and you can’t get a gallon of milk without driving to a store.
The man had to ask a friend for a ride to work. “It was hard to do that,” he said quietly. “I’m not used to asking for help.”
Since then, they’ve scaled back a lot.
“We’re OK with that,” his fiancée was quick to say. She doesn’t get her hair done any more, or her nails, things they took for granted before. They don’t go on vacation, or to the movies. But the furnace is on its last legs, she said, and they don’t know how they would pay for repairs if it conks out.
And it’s not just the little things. When his wages were cut, they fell behind on their mortgage, and the bank wasn’t willing to lower their rate, now at 8.5 percent. They couldn’t refinance with another lender, because their credit was bad. “Of course it was bad,” she said. “We lost a huge chunk of our income.”
When they couldn’t refinance, and couldn’t get a loan modification, they said they got tangled up with a foreclosure rescue scam, which took cash up front and advised them to fall further behind on their loan. Efforts to work with government programs didn’t pan out. Now they’ve declared bankruptcy and the house is in foreclosure.
“It’s all I’ve ever wanted, to work. To provide for my family. I didn’t want El Dorados and Rolexes,” the Momentive worker said, worrying the sleeves of his brown work jacket.
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As the workers and their families settle in to their new reality, more changes may lie ahead. Momentive continues to “pursue various cost reduction initiatives” across its sites, including “sourcing through low-cost countries, overtime reduction and other labor efficiency,” according to its 2010 annual report. Whether that means moving more production to China, where the company expects to “generate future growth,” remains to be seen. Momentive said in its written statement that “Waterford continues to be an important facility” in the company's “North American network.”
The company has also been making moves in the United States, merging Momentive with competitor Hexion in late 2010.
Then, in April 2011, Momentive filed the paperwork for an $862 million initial public offering that would have brought the company out of Apollo’s hands and return it to public trading. But the company is, as its 2011 annual report notes, still a “highly leveraged company,” owing $2.9 billion at the end of the year. By June 2012, that figure had grown to nearly $4 billion. In August, Standard & Poor’s downgraded Momentive’s debt from B- to CCC. A month later, Momentive withdrew the IPO filing.
Read part 1: A buyout, a reorganization and the new face of job security
While Momentive may not go public, its owner, Apollo Global Management, did. Following in the footsteps of industry giant Blackstone, Apollo launched an IPO in March 2011. At the time of the IPO, Apollo CEO Leon Black held more than 90 million shares, according to the company's prospectus, worth almost $1.8 billion when the IPO launched. A company spokeswoman, Melissa Mandel Kvitko, said none of Apollo’s management, employees, affiliates, or strategic investors sold shares in this offering.
As for Momentive workers, they still take home a nice paycheck. They know that. They work hard at their union jobs, and they get paid enough to support themselves and their families, maybe save enough to survive into old age. But something besides the pay has changed.
“I don’t like what’s happening. I don’t think it’s right. I don’t think it’s fair. But at the same time, I still have mixed feelings. I’m probably paid better than 90 percent of people,” one man said. It’s the principle, he said: It’s as if he had $10 in his pocket, and Apollo came along and took $2. He still has eight bucks, but that doesn’t make it right. And while he makes more than most people, he said, being able to retire comfortably after decades of work is what’s supposed to happen. It’s not an outrageous luxury, nor should it be.
Now, though, the canceled IPO and the debt load have him wondering about the plant’s future, and the future for young workers at Momentive. “I realize they’re a good employer, and they provide a lot of good jobs,” he said. “I don’t want to see them fail.”
He goes to work every day, he said, and does the best he can. But the contract fight has changed his relationship with a job he once loved. “It’s like being betrayed by a spouse,” he said. “It’s awful hard to go back. It’s never going to be the same for me.”
The Investigative Reporting Workshop at American University, is a nonprofit, professional newsroom that pairs experienced professional reporters and editors with graduate students, and co-publishes with mainstream media partners and nonprofit newsrooms.
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