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The Employee Ownership Update

Loren Rodgers

January 2, 2014

(Loren Rodgers)

DOL Sues ESOP Trustee, Alleging Overpayment for Shares

On December 26, the Department of Labor's Employee Benefits Security Administration (EBSA) announced that it had filed a civil suit to recover losses by ESOP participants at Miller's Health Systems. In the suit, Perez v. PBI Bank (civil action number: 3:13-cv-1400-PPS), EBSA alleges that in 2007 the trustee overpaid for the shares it acquired and approved financing for the transaction at an excessive interest rate, violating the trustee's ERISA requirements of prudence and loyalty. The plan paid $40 million for 100% of the company's shares, although managers have equity awards potentially worth 20% of the equity value.

The suit seeks to recover all alleged losses, plus interest, for participants and to prohibit the trustee, PBI Bank, Inc., from serving as a service provider or trustee for plans covered by ERISA. The ESOP at Miller's Health Systems, a privately held company, has almost 3,000 participants and assets of almost $13 million.

New Study on Trends on M&A, Private Equity Activity

According to an article in the fall 2013 issue of the SRR Journal by Gian Ricco, based on data from S&P Capital IQ, there were 15,155 mergers and acquisitions in the 12 months ending June 30, 2013, up 2% from the same period in the prior year. The aggregate value of the deals was $890 billion, down 3% from the $920 billion for the prior 12-month period, reflecting an increase in deals under $50 million. The average EBITDA multiple was 8.7 for strategic buyers and 7.7 for financial buyers. Private equity firms now hold 6,850 companies, with the median holding period for their investment at 5.4 years.

The study provides a perspective on how ESOPs compare to other transition strategies. We estimated that there are about 500 to 700 new ESOPs each year, so ESOPs clearly still are a small part of the M&A market.

Proposed Definition of Fiduciary Expected in August

The Department of Labor announced that it expected to re-propose its definition of a plan fiduciary in August. The new definition, expected to affect ESOP appraisers, is now called the "conflict-of-interest" rule.

NCEO to Open Board Elections on January 6

NCEO members in good standing will receive an email invitation to the ballot for our 2014 election for the board of directors. The election will run through February 5, and the new directors will begin their terms during the annual conference.

International Summit of Cooperatives: October 2014

The biannual meeting of cooperative leaders from around the world will take place in Quebec this year. The International Summit of Cooperatives also includes a call for academic papers.

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