Cerberus has history of tough decisions
With union backing in place, Caritas deal faces judicial review
Over the past decade, it has shut down a Houston mortgage company and fired nearly 800 employees, after first canceling their health insurance. It took a bottling company public without disclosing that it had just lost a major client, then let go hundreds of workers. And it shuttered a Wisconsin paper mill three years after entering the paper business.
Cerberus Capital Management has made the kind of tough business decisions typical of buyout firms trying to turn around money-losing companies. But despite that track record, the New York private equity company has convinced Massachusetts regulators and thousands of doctors, nurses, and union employees that it should be allowed to buy Caritas Christi Health Care, saying its ownership offers the best hope for the struggling chain of six Catholic hospitals. Indeed, Caritas officials have said the sale is necessary to keep the hospitals operating.
This morning, at a Massachusetts Supreme Judicial Court hearing, Caritas and Cerberus face the final hurdle in an approval process that began in the spring. A single justice, Francis X. Spina, will review the transaction, relying heavily on the recommendations of Attorney General Martha Coakley, who earlier this month advised that the deal should go through.
There has been little opposition to turning the nonprofit organization, once run by the Archdiocese of Boston, into a for-profit venture. But the unwavering support of the Service Employees International Union, which represents 35,000 health care workers in the state and 3,000 at Caritas, stands out.
“With the necessary protections and assurances in place, our members feel this specific investment in the Caritas system makes sense and will improve job security for workers and care delivery for patients,’’ said Veronica Turner, executive vice president of SEIU’s Local 1199.
Traditionally, the powerful union has not looked kindly on the management practices of investment firms. SEIU devotes a number of websites, including www.BehindTheBuyouts.org, to attacking buyout groups such as Bain Capital, the Carlyle Group, and Lazard. For instance, when Bain two years ago acquired Bright Horizons Family Solutions, a national day care provider, the union led protest rallies in four cities.
But almost as soon as the Caritas deal was made public in March, the union embraced Cerberus, known for acquiring troubled companies and whose recent history includes bad bets on the mortgage industry and Chrysler Corp. Union officials say there are a number of reasons they view this deal differently, chiefly because Cerberus pledged to protect jobs for at least three years, and to fully fund pensions.
They also cite that local management, led by Caritas chief executive Ralph de la Torre, will remain in place.
Most importantly, Coakley’s report said all six hospitals must remain open and their 12,000 jobs be preserved for three years. After that, the hospitals would be safe for two more years — if they meet certain performance targets.
Spokesmen for Caritas and Cerberus declined to comment for this story.
The chain’s hospitals include the flagship St. Elizabeth’s Medical Center in Brighton, Carney Hospital in Dorchester, Norwood Hospital, Good Samaritan Medical Center in Brockton, Holy Family Hospital in Methuen, and Saint Anne’s Hospital in Fall River.
History shows that Cerberus has sometimes taken drastic actions at companies it has bought.
Aegis Mortgage Corp. filed for bankruptcy protection in 2007 amid the mortgage crisis, resulting in the firing of hundreds of employees. Before ceasing operations, Cerberus canceled the Houston company’s health plan, so that it would not have to pay for health coverage for laid-off workers.
Two years after Cerberus took beer bottle manufacturer Anchor Glass Container Corp. public in 2003, that company also went bankrupt.
Cerberus was a defendant in a lawsuit brought by more than 200 Anchor employees fired when the company shut down a plant. They alleged Cerberus and Anchor, based in Tampa, failed to give them a federally mandated 60-day notice.
Cerberus, without admitting wrongdoing, agreed to pay 248 former employees $480,000 to settle the matter.
SEIU is convinced nothing like that will happen here. At minimum, the union is willing to settle for three years of better financial footing, plus the safety of pensions, which Caritas has said were dangerously underfunded.
Under terms of the deal, Cerberus will assume $260 million in pension liabilities for 13,000 current and retired Caritas employees. That’s in addition to assuming about $235 million in debt for the hospital chain. Cerberus also has said it will spend $400 million on capital improvements at the hospitals over the next four years, rebuilding emergency rooms and operating rooms, and making other overdue renovations.
“The recognition of our 1199 SEIU contract, the immediate investment in Caritas infrastructure and its pension liabilities, and the ongoing local control retained by the hospitals are key factors that speak in favor of this transaction,’’ said SEIU’s Turner.
Beth Healy can be reached at email@example.com.