How to demystify the millions at stake in an ESOP

BVWireIssue #55-3
April 18, 2007

It’s the talk of the ESOP world: the $8.2 billion buyout of the Tribune Company (NYSE:TRB) by Chicago real estate magnate Sam Zell, the terms finalized at the first of this month—and the lion’s share leveraged through the company’s ESOP (Employee Stock Ownership Plan).  The two-stage transaction requires Zell to invest $315 million for a 40% stake in the company's common stock, while the ESOP borrows $7 billion to buy the remaining shares.

The financing and valuation issues related to the Tribune deal are staggering—but they also reflect the continued popularity of ESOPs as a leveraged buyout tool (because of their favorable tax treatment) and also as a means to boost company productivity and ease ownership transitions.  Current statistics say that 10% of America’s private sector employees now work in a company with an ESOP, with all the attendant rewards—and risks.

To help navigate the potential minefields of employee ownership, authors Robert Reilly and Robert Schweihs (Willamette Management Associates) will soon release The Guide to ESOP Valuation and Financial Advisory Services (2nd edition).  With over 600 pages of ESOP valuation narrative, checklists, and sample reports—most of which are new from the original release, this second edition updates current thinking on ESOP employer stock valuation, transaction structure, acquisition financing, independent financial adviser issues, and more.  To pre-order a copy, click here.

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