Chrysler ESOP Proposal/ESOPs in Mergers and Acquisitions
April 16, 2007

Now that the Tribune/ESOP transaction has been announced, media coverage has switched to the offer to purchase Chrysler: 

"One source says Kerkorian is offering the unions a 10 percent equity stake in Chrysler, plus a seat on the board.  In return, the UAW would have to accept concessions on workers’ benefits."

The previous article and this article discuss the Tribune deal and the Chrysler offer and question whether the companies will succeed:

"ESOPs can only work if you have corporate leaders who are not afraid to give more management power to employers," said Kurland, an early lobbyist for ESOPs back in the 1970s. "The successful ones are those where workers have a direct stake in the bottom line."  By those measures, he questions whether ESOPs will succeed at Tribune and Chrysler."

This article goes further by suggesting that the Tribune deal and the Chrysler offer are for financial purposes only and not to provide employee ownership:

“Neither deal foresees a big role for workers in corporate decision-making, as advocated in Kelso's book, "The Capitalist Manifesto", written with Mortimer Adler. Today's plan is to use ESOPs to achieve narrow financial goals, not to forge an enlightened bond with workers.”

The true spirit of employee ownership is best illustrated in the story of Burns & McDonnell:

“We can measure success in a lot of ways, but one readily apparent measure is employment growth. In 1986, the first year of our ESOP, Burns & McDonnell had slightly more than 600 employees and our total sales that year were approximately $42 million. Today we have more than 2,300 employees, 1,800 in Kansas City and the rest in more than 20 offices nationwide. And we are on track for sales of $1 billion by the end of this year. That’s a sixfold increase in revenue per employee, a rate of growth that has directly benefited our employee owners.”

NCEO Executive Director Corey Rosen once again puts things in perspective in ESOPs in Mergers and Acquisitions: Wave of the Future?

“In short, there are a lot of reasons to believe that ESOPs will not be the next big thing in M&A. If the Tribune deal looks good a year from now, and if Chrysler ends up with an ESOP, no doubt at least a few other similar transactions will be tried, and maybe even a few that are in less risky situations. My guess, however, is that ESOPs will not be a major player in M&A in large public companies but will show continued and (to people outside the ESOP community) surprising strength in acquisition activity among existing ESOP companies and ESOP purchases from owners in increasingly large privately held companies.”