ESOP forces sale of p. 16

By: Editorial Staff Peoria Journal Star, Galesburg Register-Mail sp.

AN EMPLOYEE OWNERSHIP plan intended to keep the Peoria, Ill., Journal Star and Galesburg, Ill., Register-Mail in local hands instead is forcing their sale.
"It was a noble experiment that failed," Journal Star publisher John McConnell said in a telephone interview.
The problem, McConnell said, is that the generous terms of the Employee Stock Option Plan ? plus the strong financial performance of the company ? has encouraged employees to cash their stock early.
"We're seeing people leaving at 50 years old, 48 years old," he said.
As a result, the cost to the company of buying all that stock back has become ruinous, McConnell said.
"When the cash flow is growing at 4% to 5% to 6% a year ? but the (ESOP) account balances are growing at 10% to 15% a year, well, something has to give," McConnell said.
Journal Star Co.'s board of directors voted unanimously Sept. 8 to put the company up for sale rather than face the heavy debt involved in buying back stock from early retirees.
McConnell said there is "regret . . . a certain amount of sadness" at the sale ? especially since the ESOP was created in 1983 to ensure that the newspapers would continue under local ownership.
Under terms of the ESOP, 90% of the Journal Star Co. stock is owned by 420 past and present employees at the Peoria newspaper and 70 employees at the Register-Mail. The balance of the stock is owned by the Slane family and its trusts.
Eligible employees are given stock and dividend based on their wages and salary ? and can buy up more stock with pre-tax income that is matched by company contributions.
With the financial success of the company, the stock price has risen dramatically ? followed by equally dramatic increases in the company's repurchasing liability, McConnell said.
The board of directors will soon appoint an investment banking firm to explore the sale, McConnell said.