The International Herald Tribune, October 16, 2007, Tuesday
Copyright 2007 International Herald Tribune
The International Herald Tribune
October 16, 2007, Tuesday
SECTION: FINANCE; Pg. 22
AT&T, the biggest U.S. phone company, and No. 2 Verizon Communications may follow General Motors in trying to shift retiree health care liabilities to a union-run fund, a move that has helped lift GM's shares 39 percent this year.
GM, the largest U.S. automaker, reached a landmark agreement with the United Automobile Workers last month to transfer $47 billion in such obligations to a voluntary employee beneficiary association, or VEBA. The telecommunications companies, which will both negotiate new contracts with their unions in the next two years, reported a combined $71 billion in retiree liabilities last year.
''We'll be watching'' how the GM union-run fund develops, said Alberto Canal, a spokesman for Verizon, which is based in New York. He declined to give additional details. Verizon spends $3.5 billion a year for health care coverage for 900,000 active workers, retirees and dependents, he said.
Verizon and AT&T both have a union in common with GM that may set a precedent for VEBAs in separate talks with the automaker that started last week. The industrial unit of the union, the Communications Workers of America, is considering a union-run fund for a GM plant it represents in Ohio. Michael Coe, a spokesman for AT&T, based in San Antonio, Texas, declined to comment.
''Telecommunications are the next big group that will be looking at VEBAs,'' said Howard Silverblatt, an analyst at the ratings service Standard & Poor's. S&P estimates that companies in the S&P 500-stock index had $387 billion in retiree health care and insurance commitments at the end of last year.
The GM agreement sets the stage for companies like AT&T, Verizon and the aircraft maker Boeing to also restructure billions of dollars in retiree benefits, clearing out balance sheets and capping health care costs that rose by an average of 8.4 percent last year in the United States.
Like GM, AT&T and Verizon might also get a share-price lift from union-run funds, said George Foley, a fund manager at Glenmede Trust. While the gains may be smaller, ''the opportunity to move long-term legacy liabilities off the balance sheet is dramatic,'' he said.
AT&T shares have risen 18 percent, and Verizon has gained 22 percent so far this year through the end of last week.
Several companies are already looking into union-run funds, according to Andy Kramer, a partner and labor lawyer for Jones Day in Washington, who has helped GM, Goodyear Tire & Rubber and the auto-parts maker Dana establish such funds in the past two years.
Interest in retiree health care trusts has been rising since 2005, when GM set up a $3 billion fund that it controlled with the auto workers' union as part of a plan to require union retirees to pay health care premiums for the first time, said Lance Wallach, who runs VEBA Plan, a consulting company.
He said that about a third of his business is talking to private equity investors and venture capitalists about the risks of retiree health care liabilities and the potential for unlocking their value from companies' balance sheets.
New accounting rules this year require companies to add retiree health care costs as a liability on their balance sheets, a shift that turned GM and Ford Motor shareholder value negative, Kramer said. Shifting the funds to the union will reverse the shortfalls.
The telecommunications industry is similar to the automotive business in that it has large union retiree-health obligations plus ''readily available assets that you could contribute without killing your cash flow,'' Silverblatt at S&P said.
Harry Katz, dean of the School of Industrial and Labor Relations at Cornell University, said that even a union at a healthy company is more likely to consider a VEBA now that GM has one. ''Unions don't have the bargaining power they once had, and this is one way to defend existing benefits and avoid less agreeable concessions,'' he said. ''The relative power of labor is lowered in both healthy and unhealthy industries.''
LOAD-DATE: October 19, 2007
<< Home