Re: EOpriv: LTV to go coop? Algoma worker/ownership scheme in CA bankruptcy

[Dan Bell <dbell@kent.edu>]

Dear Mike Wood,

Your 4/26/01 question regarding LTV and the success ratio of last-gasp
purchases by workers would probably fit better in the discussion
on promoting employee ownership at the subnational level,
eosubnat@cog.kent.edu.

Nevertheless, allow me to respond to your question:

>I'm wondering what the success ratio
>on these last-gasp purchases by workers in industries that are
>undergoing upheaval. The results of emergency surgery are never as
>positive as those of a planned operation, so I would probably expect a
>low success ratio where the corporation was already in bankruptcy.

Regarding the success ratio of last-gasp worker buyout efforts, there
are two "successes" to measure:

1. Success at completing the buyout
2. Success at running the company profitably going forward

Our Center, the Ohio Employee Ownership Center at Kent State University,
has worked with about 380 buyout groups and companies exploring
employee ownership since 1987.

Of these, 51 employing 11,000 people implemented some form of employee
ownership. So about 1 out of every 7 considering ESOPs actually
implemented them.

Of the 51, 13 were implemented to avert a shutdown. The other 38
were non-stressed succession planning situations or employee
benefit decisions by healthy companies.

While not having the specific numbers at my finger tips, I would
describe these 380 efforts as follows:

  144 healthy businesses exploring of which 38 chose to go forward
  (one in four).

  236 stressed situations exploring of which 13 successfully completed
  the buyout. Of the 236, about 52 (one in five) decided after their
  initial assessment interview with the OEOC to have a prefeasibility
  study done (paid for by state and local government grant money in most
  cases) by professional consultants. Following the results of the
  study, perhaps 16 were closed, 7 were retained by existing ownership
  utilizing the findings of the studies, 16 remained open under new
  ownership, and 13 became employee owned.

Of all 51 ESOPs mentioned, only 2 failed. Assuming these were part
of the 13 (which may be a mistake), 5 in 6 succeeded in preserving
the jobs.

Of all 51:

  2 failed
  1 repurchased the stock back from the employees
  5 were subsequently sold by the employees
  43 remained partially or wholly employee-owned

The last time LTV went into Chapter 11, several ESOPs emerged
around the late 1980s. These include Republic Container and Republic 
Storage Systems, which are still operating as 100% employee-owned
companies, and Republic Engineered Steels, Inc. (RESI).

RESI was an LTV bar mill division which was slated to be closed in
1989. The employees bought it and operated it for 10 years, keeping
their jobs with union level wages and benefits, cutting $80 million
in annual operating costs out of a $800 million budget through
ownership education of the 4500 employees and employee involvement
teams. Around 1999, the employees sold the company, each walking
away with on average $40,000 in capital. Employment was downsized
to about 3200. Under the current steel crisis, the company is now
operating in Chapter 11.

When compared to being shut in 1989 and putting 4500 people on the
street, I'd say this was a great success.


--
Dan Bell
International Program Coordinator
Ohio Employee Ownership Center
Kent State University
Kent, OH 44242
(330) 672-0333 << New direct number!
(330) 672-4063 fax
dbell@kent.edu
http://www.kent.edu/oeoc/
http://cog.kent.edu