In the News
June 11, 2007

This post discusess recent ESOP companies in the news as well as an ESOP settlement and the possibility of another Tribune-like ESOP.

ESOP Stories

This article tells the story of Landscape Structures Inc., a Delano, Minn., company that makes playground equipment for schools and parks around the world:

“The company's 325 workers own 30 percent of Landscape Structures through an employee stock ownership plan (ESOP) that began in 2004, Chairman Steve King, 62, said.  Revenue last year was $90 million to $100 million and it's likely to top $100 million this year for the first time in the company's 36-year history. The ESOP is a key part of the Kings' exit strategy, enabling them to liquidate their stake in the company gradually while maintaining a role in it. Managers and employees will stay in place through the transition.”

The story of V3 Companies Ltd., a multi-disciplined consulting firm based in Woodridge, Illinois, and their commitment to their ESOP, is discussed in this article:

"One of the best decisions we ever made was to give our employees inclusive ownership by creating an ESOP," said Petroelje. "We've managed to provide V3 employee shareholders with an average 20 percent return on their investment every year."

This article recaps the story of Appleton, the nation’s 35th largest employee-owned company.  This ESOP story is unique because their management and workers voted to invest the majority of their retirement savings to acquire the company:

"Employees agreed. About 90 percent of Appleton employees voted to contribute an average of nearly 75 percent of their retirement savings to buy company stock, Van Den Brandt said.

In November 2001, the company announced it had used a $107 million employee investment to complete an $810 million buyout of the company. At the time, company shares were valued at $10. As of Dec. 31, 2006, shares were put at $33.62. (The private company's shares are valued twice a year. The next valuation is June 30.)”

This press release discusses Longwood-based Quality Manufacturing Services (QMS) Inc., which provides printed circuit board assemblies for military, commercial and industrial applications, and the sale of half of the company to an ESOP:

"“ESOP sales offer the most flexible liquidity strategy available to a business owner,” said John Eckbert of PCE Investment Bankers who advised Fehnel and Ayoub. ESOPs are an increasingly popular and advantageous means for business owners to create liquidity, reward and retain management and provide favorable future tax savings for companies. Several notable Florida companies that are ESOPs are Publix Supermarkets, US Sugar, and Mercedes Homes.

“After tax proceeds from the sale to an ESOP can be 25% more than a sale for the same price to a strategic buyer because of the tax incentives available to shareholders for selling to an ESOP,” said Eckbert. “Additionally, the earnings of the company going forward can be shielded from future federal income taxes. Finally, an ESOP offers the flexibility of only selling a portion of the company now, while holding a significant stake in the upside of the business going forward.””

This story discusses Gear Motions Inc. and their path towards becoming a 100% employee owned company by using an ESOP.

“Plans call for the Gear Motions employee ownership plan to unfold in three stages. The initial phase got under way in late 2005, when one-third of Gear Motions’ stock was transferred to the ESOP. The company borrows money on behalf of the program, and as the principal is repaid, an equivalent amount of stock goes into the employees’ ESOP accounts, according to Gear Motions. The subsequent two phases, each involving another one third of the company’s stock, are scheduled to start in 2010 and 2015, but the company is considering accelerating the timetable, Barron said.”

 

Private Equity Strategy 

This article discusses the possibility of Dow Jones & Co. being the next large publicly held company to use an ESOP transaction to take the company private.

ESOP Settlement

In March we discussed the announcement that the Internal Revenue Service was auditing Marriott International's federal tax returns over $1 billion in ESOP-related deductions.  The company announced a $220 million settlement with the IRS and DOL.

“Marriott International said Friday that it has reached a $220 million settlement with the Internal Revenue Service and the Department of Labor following an IRS examination of its employee stock ownership plan.”