Using Stock to Acquire ESOP Companies

A company that wants to acquire or merge with an ESOP-owned company using stock or debt rather than cash must consider the securities law issues raised by such a transaction. Stock-for-stock acquisitions or mergers involving ESOPs can require ESOP participants to make an "investment decision" as a result of the ESOP's pass-through voting requirements under ERISA, implicating SEC Rule 145, and the doctrines addressed in SEC Releases 33-6188 and 33-6281. Using securities to acquire ESOP companies can be done through a California fairness hearing, which is simpler and less expensive than an SEC registration.

Bruce Dravis describes the issues and the process in an article in "The Journal of Employee Ownership Law and Finance," Vol. 18, No. 1 (Winter 2006), published by the National Center for Employee Ownership (NCEO). Visit the NCEO's website at http://www.nceo.org.

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