Labor Lauds Erstwhile Foe, for One Deal at Least

PHILADELPHIA â€" The grizzled labor leaders in the audience had scarcely seen anything like it.

A top private equity executive, David M. Marchick, leaned in and planted a kiss on the cheek of Nancy Minor, the vice president of Local 10-1 of the United Steelworkers. The union was so pleased with a deal done by Mr. Marchick’s firm, the Carlyle Group, that it was giving him an award.

“This is a celebration of strange bedfellows,” Mr. Marchick, Carlyle’s global head of external affairs, said before posing for a photograph with a group that included Leo W. Gerard, the union’s incendiary international president.

The worlds of labor and private equity, habitually on opposite sides of the bargaining table, sat together around dinner tables on Saturday for an awards ceremony at a union hall here. The event, honoring a selection of union officials and outsiders, offered a chance for blue-collar leaders â€" amid a few wisecracks and raised eyebrows â€" to tip their hats to the moneymen who they said had saved their workers’ jobs.

The celebration was the result of Carlyle’s deal last year to take control of a big oil refinery in town that its previous owner, Sunoco, had threatened to close. In an agreement brokered with help from the White House, Carlyle took a majority stake in a new joint venture with Sunoco, investing about $250 million to refurbish the refinery and build a railyard. The refinery processes 330,000 barrels of crude oil a day and employs more than 1,000 workers.

Carlyle, which entered the labor talks in a position of strength, impressed the union members by leaving their wages and benefits largely intact. The concessions the workers did have to make were relatively minor, including a reduction of overtime pay in certain cases, union leaders said.

“Carlyle just essentially took the labor agreement,” said Thomas M. Conway, the steelworkers’ international vice president for administration, who participated in the negotiations. “In all fairness, people would have listened to almost any idea if it meant keeping the refinery open.”

Fifteen months after the deal closed, the union was handing out plaques not only to Mr. Marchick but also to Philip L. Rinaldi, the chief executive of the joint venture, Philadelphia Energy Solutions, who was hired by Carlyle.

But the decision to toast the executives did not sit well with the entire rank and file. Some of the refinery workers grumbled about “taking the C.E.O. out to dinner,” said Jim Savage, the president of Local 10-1, who said it was his idea to honor the two executives.

“It was like, ‘Hey are we going too far with this “Kumbaya” stuff? We’re giving an award to a C.E.O. and a private equity guy,’” Mr. Savage said.

The image of private equity in popular culture, at least in the eyes of labor, has been one of sharp cutbacks with little regard for workers. It was magnified last year after Mitt Romney’s presidential bid put an uncomfortable spotlight on Bain Capital. But Carlyle and the steelworkers have shown a willingness to cooperate in the past.

With the United States steel industry struggling in the early 2000s, the private equity titan Wilbur L. Ross recognized a buying opportunity, cobbling together a multibillion-dollar steel company. His deal-making, in addition to proving lucrative, won him accolades from Mr. Gerard, the president of the steelworkers’ union, who credited Mr. Ross with helping to save the industry.

Carlyle, too, has made big bets on American manufacturing. In 2007, the firm bought almost all of the engineered products division of Goodyear Tire and Rubber, where many of the employees belonged to the United Steelworkers.

Two years later, Mr. Gerard co-wrote an opinion essay on manufacturing with David M. Rubenstein, one of Carlyle’s founders. Mr. Gerard has also testified before the Senate alongside Mr. Marchick of Carlyle.

“The steelworkers’ union has been more willing to experiment with this kind of thing than other unions because their industry has been under more stress,” said Alex Colvin, a professor at the Cornell School of Industrial and Labor Relations. “They haven’t had the option from the 1980s onward of being complacent.”

In the refinery deal, Carlyle’s decision not to antagonize the union boiled down to a matter of strategy.

Labor costs were already similar to those at comparable facilities, said Rodney S. Cohen, the Carlyle executive who led the deal. In that context, keeping the workers happy was deemed more valuable than obtaining any big concessions.

The interested parties extended beyond the labor union.

Gene B. Sperling, the chief White House economic adviser, played an active role in the talks in March 2012, telling the head of Sunoco that the Obama administration wanted to see the refinery stay open. A report by the Energy Information Administration had determined that a shutdown of the Philadelphia plant could cause energy prices to rise.

Brian P. McDonald, Sunoco’s chief executive at the time, subsequently called Mr. Cohen of Carlyle, leaving a voice mail message on his cellphone. The private equity firm, which is based in Washington and has longstanding connections there, was brought in to do the deal.
With clouds of steam rising at dusk on Saturday, the vast refinery on the Schuylkill traced an industrial skyline, its towers shimmering with so many lights.

Across town, the union leaders praising Carlyle sought to show that they had not lost their bark. “Let the capitalist get the drink,” Mr. Gerard bellowed as Mr. Marchick stood at the bar. “Throw 10 bucks in the basket.”

One labor figure in the audience, Jim Moran, the retired director of the Philadelphia Area Project on Occupational Safety and Health, said he had never before seen a union bestow such an honor on a private equity executive. Mr. Marchick, in town for the night with his wife, Pamela Kurland, took home a “special recognition and appreciation” award.

As the band struck up a swing tune, Mr. Moran, 74, said he had taken Mr. Savage, the president of Local 10-1, aside for a word this fall.

“It all sounds great for now,” Mr. Moran said he told Mr. Savage. “But I’d keep my hand on my gun anyway.”