ESOPs like other qualified retirement plans do terminate. For those of us who have been administering ESOPs for some time, we had the anecdotal evidence as to why. But not until recently has there been an actual study as to why ESOPs do terminate. The Employee Ownership Foundation today released the second phase of a final report on the reasons why companies terminate ESOPs. Phase I of the report found that while the most common reason for termination may be acquisition, and Phase II was conclusive that an attractive acquisition offer was the primary reason for ESOP termination.
For many of our ESOP clients, the offers were too good to turn down. The employee-shareholders received substantial financial benefits on the sale of their ESOP shares. These ESOP companies were successful because they combined employee ownership with participatory management. The buyers were larger companies with different cultures. And for some of these selling companies, it was the day the music died.