FOCUS ON EMPLOYEE STOCK OWNERSHIP PLAN
VALUATION AND FINANCIAL ADVISORY SERVICES
Editor for This Issue: James G. Rabe
ESOP Financial Advisory Insights
Feature Article:
S Corporation ESOPs Create Investment, Acquisition, and Exit Strategy Opportunities
for Private Equity Groups
William W. Merten, Esq.
M&A advisers are becoming increasingly familiar with leveraged ESOP transactions and are routinely considering the ESOP platform as an exit/acquisition alternative. This article describes (1) the way leveraged ESOPs have historically been used to provide a tax-advantaged exit strategy for privately held business owners, and (2) the ways in which private equity groups are now using ESOPs as an exit/acquisition alternative.
ESOP Employer Stock Purchase/Sale Transaction Fairness Opinions
Robert P. Schweihs
The ESOP trustee has a fiduciary responsibility to the ESOP plan participants. This duty is no more obvious than when the trustee has to vote on (or otherwise approve) transactions involving the employer corporation stock. Examples of such transactions that directly affect the ESOP include: (1) the ESOP purchase (whether leveraged or not) of the employer stock, (2) the ESOP sale of the employer stock-either back to the plan sponsor or to a third party, (3) the ESOP's participation in the sale of the entire employer corporation (e.g., in response to a merger/acquisition tender offer), and (4) the employer corporation issuance of a new class of equity security (either common or preferred stock). In all of these instances, the ESOP trustee typically relies on a fairness opinion issued by an independent financial adviser to obtain information to assist the trustee in his/her decision making. This article summarizes the (1) intent, (2) content, and (3) purposes of the typical ESOP employer stock purchase/sale transaction fairness opinion.
S Corporation Status versus C Corporation Status-Which Taxation Status Is Right for Your ESOP Company?
Nancy K. Dittmer
It is important that ESOP sponsor corporations seek advice from both a competent tax adviser and an experienced ESOP consultant when considering the merits of C corporation status versus S corporation status. This article presents a summary of several differences between S corporation and C corporation ESOPs. This article also presents a summary of the negative consequences of the anti-abuse rules of Internal Revenue Code Section 409(p).
A Fiduciary's Guide to Selecting a Financial Adviser and Reviewing an ESOP Stock Valuation Report
Timothy J. Meinhart
This discussion summarizes the various factors that an ESOP fiduciary should consider when hiring an independent financial adviser. The article also presents a checklist of items that the ESOP fiduciary should consider when reviewing an employer corporation stock valuation report.
"ESOPs Emerge as an Attractive Exit Strategy"-A Reprint of an Article from the July 25, 2005 Issue of Factset Flashwire Weekly
Issue of Factset Flashwire Weekly
FactSet Flashwire Weekly recently interviewed Mike Hartman, a principal in our firm's ESOP financial advisory services practice. In this interview, which is reprinted below, Hartman describes the economic benefits of an ESOP formation as an exit strategy for the owners of a family-owned or other closely held business. In particular, a leveraged ESOP formation can provide significant corporate income tax advantages to the employer corporation/ESOP sponsor. And, a leveraged ESOP buyout of the employer corporation stock can provide significant capital gains tax deferral benefits to the selling shareholders.
Changing the ESOP Financial Adviser
Malcolm R. Hartman
Financial advisory firms that maintain an active ESOP practice are often asked to consider taking on the valuation work previously performed by other financial advisers. This article addresses common reasons why an ESOP trustee may decide to change the ESOP financial adviser. And, this article outlines some of the risks associated with making a precipitous change in the ESOP financial adviser.
ESOP Formation in Health Care Industry Employer Corporations
Charles A. Wilhoite
The domestic health care industry encompasses a wide array of product and service providers. In fact, the health care industry is described by several SIC codes and NAICS sectors. Some of the health care industry segments are viable candidates for ESOP formations; some of the industry segments are not. This article describes many of the common factors that financial advisers consider when assessing whether a particular health care industry employer corporation is a viable candidate for an ESOP formation.
ESOP Fiduciary Insights
Armstrong v. Amsted Industries, Inc.-District Court Sides with the ESOP Fiduciaries
Aaron M. Rotkowski
The ESOP fiduciaries and the ESOP sponsor company insiders won a decisive victory in the case of Armstrong v. Amsted Industries. At issue in this District Court case was whether the defendants honored their fiduciary duties. In its published decision, the District Court ruled that either (1) the acts by the defendants were not subject to fiduciary duties or (2) the various ESOP fiduciaries acted prudently when required to do so. The latter decision was influenced by the fact that (1) the ESOP trustee and the ESOP valuation adviser were independent and credible and (2) their actions were well-reasoned and well-documented.
ESOP Administrative Responsibilities of Fiduciaries and Nonfiduciaries
Kim M. Blaugher
Fiduciaries of retirement plans are held to a high standard of conduct. The general measure of whether or not one qualifies as a fiduciary to a plan centers on whether or not that individual has discretionary authority over the plan's administration and/or assets. This article strongly recommends that the role and responsibilities of the individuals involved in the plan be defined and clarified to the greatest extent possible. In addition, this article presents a summary of the persons or entities involved in the administration of an ESOP and their typical fiduciary status.
Best Plan Practices
John A. Kober, Esq.
Sponsor companies, plan fiduciaries, and ESOP committee members should begin (or continue) to implement Best Plan Practices to address retirement plan matters. This article presents the need for Best Plan Practices. And, this article also presents a summary of some actions considered by many sponsor companies to be Best Plan Practices.
The ESOP Trustee as Shareholder
Brian Ippensen and Merri Ash
Anyone serving as the ESOP trustee must be ready to serve the duties and requirements of a fiduciary under ERISA before serving the duties of a shareholder or director. This article discusses the shareholder obligations of the ESOP trustee. This article also discusses the role of the ESOP trustee in (1) electing the board, (2) responding to acquisition proposals, and (3) overseeing board/executive compensation.
ESOP Legislative and Regulatory Insights
A Review of the 2005 Legislative and Regulatory Developments that Affect ESOPs
Laurence Goldberg, Esq.
This article provides an overview of the most significant (1) new Internal Revenue Service regulations and rulings and (2) published decisions in federal court cases affecting ESOPs during 2005. ESOP plan sponsor corporation managements, ESOP administrative committee members, ESOP financial advisers, and (of course) ESOP legal counsel should be aware of these legislative, regulatory, and judicial developments.
Willamette Management Associates Insights
About This Insights Issue/About the Editor
ESOP Financial Advisory Services Brochure
Book Review of Willamette Management Associates Guide to ESOP Valuation
Annual Firm Promotions
Letter to the Editor
Communiqué
|
