PI Original Adam Doster Monday May 4th, 2009, 9:39am

Hartmarx And Wells Fargo: The Makings Of The Next Republic Windows?

A big labor fight is brewing in Des Plaines.

Last December, financial giant and multi-billion-dollar bailout recipient Bank of America canceled a $5 million line of credit to Chicago-based Republic Windows and Doors, leading the owners to abruptly shut down their Goose Island plant. The 250 unionized workers employed at the factory then pushed back, staging a sit-in at the factory to secure the 60 days severance and unused vacation days they were lawfully owed. After a dramatic victory that drew national media attention, some labor experts and business leaders guessed that the peaceful occupation might set an example for banks and employers considering such short-sighted actions. 

Apparently, fellow bailout recipient Wells Fargo ignored the uproar, as a similar situation may be brewing around a manufacturer they finance. If the bank ultimately puts short-term profits over the survival of this longstanding Illinois-based company, union workers and Americans at large would have yet another reason to castigate the Wall Street interests who, in Sen. Dick Durbin's words, "own" Washington.

Hart Schaffner Marx (known colloquially as Hartmarx) has been manufacturing high-quality clothing apparel for over 100 years. With 2,000 North American employees -- including 1,000 workers at plants in Des Plaines and Rock Island and a warehouse in Michigan City, IN -- it's the only remaining major, high-end, men's clothing manufacturer in America.

The company has friends and fans in the nation's capitol. Rep. Phil Hare -- as the Washington Post's Harold Meyerson noted last Thursday -- worked in the factory's cutting room from 1969 through 1982 and led the union local for 12 of those years. Meanwhile, President Obama consistently wears Hartmarx suits (see him showing off the label in the photo above), including on the day of his inauguration.

But like most manufacturers of luxury goods, 2008 was a particularily tough year. As demand for discretionary apparel purchases shrunk, profits fell. Coupled with the larger problems on Wall Street, the company's stock price dipped from $2 to $0.20 between late September and late November. And that's when Wells Fargo -- the company's principal lender of short and long term debt -- got active. The bank refused to extend credit to Hartmarx, lowering its borrowing capacity and forcing it to file for Chapter 11 bankruptcy in January.

After Hartmarx declared bankruptcy, it took pressure from Rep. Hare, House Financial Services Committee Chairman Barney Frank, Sen. Chuck Schumer, and members of the Obama administration to convince Wells Fargo to provide the ailing company with a $100 million "debtor in possession" loan to finance operations during the restructuring.

Sources told Women’s Wear Daily recently (subscription required) that Hartmarx is at "a critical juncture in its ability to fund operations," with finances beyond the delivery of last week’s payroll in question. Liquidation -- which would entail selling the company's inventory, machines, and brand name, while firing the entire workforce -- is a real possibility. Hare has suggested it is also the preferred option of Wells Fargo, which accepted $25 billion in TARP funds and recently posted a "record first quarter profit."  Indeed, UNITE-HERE general president Bruce Raynor told WWD that the bank has been further tightening the screws:

“As I understand it, these bankers are squeezing the company in an irresponsible fashion,” said Raynor. “They keep tightening the rope and what that does is choke the company gradually.”

Hartmarx employees are justifiably angry over Wells Fargo's actions. Ruby Sims -- a 32-year veteran of the Des Plaines plant -- put three kids through college by making suits. Now she might soon find herself on the unemployment rolls. "I can't believe that a bank that got some of this money would turn around and do us like this," Sims told the Sun-Times Mark Brown. "We deserve a second chance." Hare describes himself as "furious" with Wells Fargo, as the Sun-Times reported:

“The banks were to use this money to accelerate loans to businesses so (the businesses) could keep functioning, to lend money to homeowners and to help companies like Hartmarx that are going through bad times,” Hare said.

Hare went further in his comments to WWD:

"I will not continue to send money to banks that run people out of their homes and businesses. I’m livid with Wells Fargo. I don’t know what their logic is.”

Three bidders -- London-based Emerisque, New York-based Mistral Equity Partners, and California-based Yucaipa Cos. -- are vying to acquire Hartmarx in a bankruptcy court auction. Company executives favor the Emerisque bid because the London firm is expected to keep Hartmarx largely intact and try to revitalize its brands. Yucaipa -- run by billionaire and Bill Clinton buddy Ron Burkle -- has a history of leveraged buyouts of grocery store chains and has maintained solid relationships with organized labor, including the United Food and Commercial Workers.

But despite the potential viability of the company (with its storied history and strong brand), the lenders don't appear to have its long-term interests in mind, as the Sun-Times' Sandra Gray wrote last week:

[S]ources said "a great battle is going on" among Hartmarx's lenders and secured and unsecured creditors about which bidder could accomplish a quick return. One source speculated that at least one bidder might liquidate Hartmarx.

The next step before the official bankruptcy court auction is for Wells Fargo to select the bidder it favors -- a decision that could come in the next few days. If Emerisque is chosen, expect a sigh of relief from those working to save the company.  If not, worries about a potential liquidation are sure to rise.  We'll be tracking the developments.

Image used under a Creative Commons license by Flickr user The Official White House Photostream.

UPDATE: Greg Hinz has more:

[Workers United Chicago area treasurer Joe] Costigan strongly hints that, like the Republic workers, the Hartmarx folks may decline to leave the premises if someone tries to shut it.

"We're not going to rule anything like that out," he says. "We are not going to tolerate job destruction."

Full disclosure: Workers United, which presents the Hartmarx workers, is an affiliate of the Service Employees International Union.  The SEIU Illinois State Council sponsors this website.   


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