TRAINING AND EDUCATIONFOR EMPLOYEE BUYOUTS

FIFTH EUROPEAN MEETING OF EMPLOYEE OWNERSHIP

Brussels 16, 17, 18 June 2005

European Federation of Employee Share Ownership

Dan Bell (dbell@kent.edu)

OHIO EMPLOYEE OWNERSHIP CENTER

Kent State University

About the OEOC Since 1987

• Assisted: 485 companies, 93,000 employees

• Results: 71 firms employing 14,000

• Cost to Taxpayers: $250 per job

• http://dept.kent.edu/oeoc/

USES OF EMPLOYEE OWNERSHIP

• Owner Driven– Succession Planning– Competitiveness Strategy– Tax Advantaged Corporate Financing

• Employee Driven– Averting a Plant Shutdown

• http://dept.kent.edu/oeoc/BuyoutAssistance/WhenEOMakesSense.htm

Education for Seller: Why Employee Ownership

• Diversify Concentrated Wealth

• Flexible Multiple Year Transition Out

• Tax Savings vs Strategic Buyer Price

Education for Seller:How to Do the Deal

• Acceptable Valuation before Going Public

• Get Commitment (Vote) from Employees

• Involve Employees in Design

• Finding Experienced Professionals

• Grant Money if Job Loss Threatened

Education for Seller:Design Issues

• Administration Cost vs Tax Savings

• Potential Conflict of Interest as Trustee

• Repurchase Liability

• Employee Benefit vs Ownership Culture

Education for Buyers

• Steps In a Buyout

• Factors to Consider

• How ESOP or Cooperative Works

• Design & Structuring Issues

Education for Buyers: Steps in Doing a Buyout

• Education about the buyout

• Establish a buyout committee

• Preliminary feasibility assessment

• Business Plan

• Negotiate sales agreement with seller

• Arrange financing

• Close deal and CELEBRATE!

Education for Buyers: Key Factors to Consider

• Is the current owner willing to sell?• Do the employees want to buy?• Is there enough time for a buyout?• Is the plant competitive?• Is competent management available?• Is financing available?• Will labor-management relations hinder success?

Education for Buyers: How ESOPs Work

• How Does the ESOP Buy the Company?

• How Do I Get in the ESOP?

• How Do I Get Stock in My Account?

• How Do I Get My Money?

• What Rights Do I Have?– Voting– Information

How Do ESOPs Buy Stock?

ESOP

Company Original Owners

Employees

Bank

LOAN A

LOAN B PAYMENT

Stock

Employee Owners

How Do ESOPs Repay the Loan?

ESOP

Company

Employee Owners

Bank

Retirement Contribution

LOAN A Payment

LOAN B Payment

How Do I Get Stock in My Account?

Company

Retirement Contributions

Individual Accounts

How Do I Get Stock in My Account?

Suspense Account

(Holds Shares as Collateral on Unpaid Portion of ESOP Loan)

Individual Accounts

(Uses ESOP Allocation to Repay Loan and Receive Released Shares)

Education for Buyers: Design & Structuring Issues

• Wage Concession / Pension Rollover

• Shared Governance

• Individual vs Group Interests

• Future Employees – Also Owners?

• Equity Partners

OEOC Web Site Resources

• http://dept.kent.edu/oeoc/BuyoutAssistance/StepsinBuyout.htm

• http://dept.kent.edu/oeoc/BuyoutAssistance/PreliminaryFeasibility.htm

• http://dept.kent.edu/oeoc/BuyoutAssistance/KeyQuestions.htm

• http://dept.kent.edu/oeoc/commonwealthbrochure.pdf• http://dept.kent.edu/oeoc/BuyoutAssistance/

WhatIsESOP.htm• http://dept.kent.edu/oeoc/BuyoutAssistance/

CreatingAnOwnershipCulture.htm