Hoover Workers at Crossroads
From the window in his small union hall office, Jim Repace can look out at the red brick, four-story Hoover Co. plant and dream about owning the well-known vacuum cleaner maker.
His task is to inspire hundreds of workers that their best strategy to stop a job drain is a risky one: to buy a struggling company, if they can find some financial help.
They hope to form an employee stock ownership plan, or ESOP, now that new owner Whirlpool Corp. is selling the nearly 100-year-old Hoover. The company has employed generations of workers in this northeast Ohio city, and employees want a say in global decisions, too.
“Times have changed,” said Repace, president of the International Brotherhood of Electrical Workers Local 1985. “You can’t put a management team in here that doesn’t know anything about floor care. This company means a lot to its community.”
The local, backed by the national union, has hired consultants to help find equity investment partners and make a business plan and a bid. The consultants have asked Whirlpool’s investment banker, New York-based Lazard Ltd., for specific information about Hoover finances.
But buying a company to save jobs is especially challenging, ESOP experts say. There might be insufficient profit to help improve a business that could need some capital investment. Most successful ESOPs bought businesses that already were profitable and originate with the company’s owners to serve some strategic objective, such as a capital gains tax advantage as part of a succession plan.
Nationally, there are about 11,500 ESOPs with about 10 million participants, said Corey Rosen, executive director of the National Center for Employee Ownership in Oakland.
His organization’s research indicates that about 1% of ESOPs were formed to save jobs, a move that requires employee concessions or investments.
“Those things are hard to do and risky to do,” Rosen said.
Hoover, which also makes other floor-care products, traces its origin to a vacuum cleaner that Murray Spangler, a janitor, designed in 1907. Spangler formed a company with William H. “Boss” Hoover, the husband of a family friend.
The 1,500 hourly jobs of a few years ago at North Canton and two other plants in Stark County have dwindled to about 820 as jobs shifted to lower-cost, nonunion Hoover assembly plants in El Paso and Juarez, Mexico, which now have about 1,800 workers.
Still, Hoover means a lot to its hometown of about 16,000 people, where streets and schools are named for the company. And Hoover remains the city’s largest private employer.
But beyond the money, Hoover workers have helped fill out the ranks of volunteer or part-time firefighters, and the company traditionally puts up a Christmas tree on its property across from City Hall in North Canton’s quaint downtown.
“I’ve talked to quite a few people here about an ESOP, and even with reservations they understand it may be the best option available,” said Mike McNichol, 48, a 26-year Hoover tool and die maker who helps make equipment needed for prototype products. “A lot of people here realize it may be the only way to keep the plant open.”
A well-known employee stock ownership plan that grew from a company in distress was Weirton Steel, which was the largest company in America to be entirely owned by employees.
Workers paid for a feasibility study and took 32% pay cuts to pull the deal off. The company was profitable at first, but eventually Weirton Steel was forced to file for bankruptcy protection under the weight of unrelenting global competition and the nationwide consolidation of the industry. Still, many workers believe that the ESOP bought them about 20 years they wouldn’t have had otherwise.
“If it’s done correctly there is generally a great deal of pride that comes along with being an owner,” said Mark Glyptis, president of the Independent Steelworkers Union, which was part of the Weirton Steel ESOP. “But there’s a lot of hard work involved and decisions that have to be made that sometimes aren’t very popular.”
John Logue, an ESOP author and researcher, said the plans worked best in small, healthy companies.
However, employee ownership has saved some struggling companies, including Springfield ReManufacturing Co., now SRC Holdings Corp., in Springfield, Mo., which formerly was part of International Harvester, Logue said.
Whirlpool, based in Benton Harbor, Mich., acquired Hoover as part of its takeover of Newton, Iowa-based Maytag Corp. in March and is selling the Ohio company because it wants to focus on appliances other than vacuum cleaners. Whirlpool spokeswoman Jody Lau wouldn’t disclose an asking price or other possible buyers.
Hoover’s financial results are not broken out separately in Whirlpool’s public filings. When Maytag reported an operating income loss of $24.2 million for 2005 in its home appliances segment, Chief Executive Ralph Hake put some of the blame on Hoover, saying: “We can no longer carry the burden of this underperforming product line.”
Analysts say they’ve been told Hoover is not profitable.
“Consumer preferences and tastes evolve,” said David MacGregor, an analyst for Longbow Research. “They haven’t spent the time and money to develop new products. The brand is still well regarded and trusted by the consumer, but the product has no allure.”
Yet, the company could be a good buy, MacGregor said.
“The business is fixable, whether the new owner is an ESOP or some strategic buyer. The real challenge will be to get retailers excited about the Hoover brand,” he said.
Many unanswered questions linger about the workers’ effort. How big would the bid have to be? And what sort of financial commitment would the workers have to make?
“I can tell you it will not come out of our 401(k) or pension plan,” said Repace, 57, who worked at the North Canton plant for about 15 years. “I think our membership is smart enough to know there would have to be some adjustments.”
