Crunching the numbers

The Tribune Company is going to have to wait, because Republic Windows and Doors has a very interesting new development today.

JP Morgan Chase has offered $400,000 toward the workers. This is a step in the right direction from a company whose subisdiary owns 40% of the company. This is not pocket change, but it should also be kept in perspective: My hunch is that Chase Midwest has no legal obligation to pay anything to the workers (corporate law being what it is) but I would argue that ethically, a corporation that has a 40% share in a company also has an obligation to pay 40% of an losses.

The total amount owed to employees is reportedly $1.5 million, so a 40% share of that would be $600,000. So Chase Midwest owes the workers another $200 grand. And of course that would still leave nearly a million bucks to go, just to pay severance and let the workers walk away into a really dismal manufacturing job market. I hope that they don’t settle for this since it will only buy them a few months of pay. Much better to hold out and try to take ownership of the plant. Maybe.

A major obstacle to a worker buyout is that the owners seem to be planning to stay in the window business after using corporate law to abandon Republic and escape personal liability. Totally legal, but really bad form. They are very unlikely to want to sell the assets, especially if they are planning to use them in Iowa.

We should also remember that this is a company that has been losing money for six years, so it might not be a good idea for the workers to invest in it. On the other other hand, it seems that the new owners have been planning to close the place and reopen with nonunion labor in Iowa and had started moving equipment last month), so perhaps Republic could be run profitably if not owned by looters.

Now, to really throw some cold water of reality on this situation, let’s look at what would be involved in actually financing a worker buyout, even if the owners can be convinced to sell. I can hardly bear to look.

A few years ago, the Olympia brewery shut down, throwing a bunch of people out of work. At the time, I did my usual thing of trying to find some sort of cooperative solution (I can’t help myself). And after I divided the sale price by the number of employees it turned out that the asking price would have been far above anything anyone without a recently deceased wealthy relative could hope to pay. I also looked into whether there could be some sort of co-op of microbreweries that could move in and share the facility. But it turned out that all the microbreweries in the Northwest couldn’t match the output of this single plant, which had been closed because it was small and obsolete and Olympia beer was made in Texas anyway (It’s the water!). It was kind of discouraging, and made me realize how far we are from any sort of equitable economy. But I digress.

So anyhow. Republic. Chase Capital reportedly made $12 million in loans and investments. Assuming that that is 40% of the total equity tied up in this thing, and that no further investment would be needed (both of which are probably not the case), that means that the business is worth $30 million. It might be worth more than that, but we should also consider that the thing is closed, and only worth what someone will pay for any inventory and the property, which is probably not a whole lot. There is also some cause for the city of Chicago to pull some sort of eminent domain lien move as a sort of retaliation for having provided a nearly $10 million subsidy for the plant in 1996. Of course, I am no expert in those sorts of things; I’m just brainstorming.

Let’s just say that it would cost $30 million for the workers to buy Republic. That means that each of the 300 employees would need to come up with $100,000. If we count the money already pledged by Chase, it’s more like $99,000. This is still a lot of money for the average factory worker to scrounge up during the worst holiday season in decades. Even if it turns out to be half that much, it is still more money than most of us have lying around the house.

A worker buyout is clearly not going to be easy. Nevertheless, I think that the situation calls for some flexibility, especially on the part of Bank of America, which currently stands to get a nearly worthless piece of property to manage and protect from vandals and squatters and pigeons until someone wants to open a new window and door factory to compete with the old owners, who hope to be all set up and profitable in Iowa by that time.

Someone who knows way more about business than I do (paging Dr. Krugman!) needs to take a look at this and figure out if it makes any sense, or if Republic Windows and Doors is just doomed to go down with the rest of the hugely overgrown real estate industry.

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