The 800 employees in Purcell Tire & Rubber Co.'s Employee Stock Ownership Plan (ESOP) are in line for a share of a multi-million dollar payout following the dealership's recent sale to its former owners, Robert and Juanita Purcell.
The sum represents the equity value of the company at closing and is roughly one fourth of the sale price of about $100 million, Mr. Purcell said in an interview during the Tire Industry Association's recent Off The Road Tire Conference in Hawaii. The $100 million is approximately the same selling price as in 2002, when the Purcells sold the dealership to the ESOP. The difference represents the company's debt.
The amount of money each employee in the ESOP receives will vary depending on a formula based on salary and years of service with the company, Mr. Purcell said. The values of the shares will be about six times the ESOP balance for each employee. The funds will be deposited into the individuals' 401(k) retirement plans, although employees will have the option to take a small percentage in cash.
The deal returns full ownership of the Potosi, Mo.-based retail and commercial tire dealership to the Purcells, who plan to double the company's sales to $500 million over the next five years.
``That's our goal, five-five-five: $500 million in five years with $50 million EBITDA (earnings before interest, taxes, depreciation and amortization),'' Mr. Purcell said.
Is that realistic? ``I think maybe we'll do better,'' he said.
Mr. Purcell, 73, and Mrs. Purcell, 71, decided last year to buy back their former company-which they continued to lead as chairman and executive vice president, respectively-after several investment companies became interested in acquiring the firm.
``What happened was our company was successful and had a good reputation in the marketplace with customers and employees,'' Mr. Purcell said. ``And there started to be contacts by people that wanted to buy the company.''
When these inquiries began, Mr. Purcell said the company's board decided to get formal bids to determine the dealership's value. The board and the ESOP trustee also sought fairness opinions regarding the firm's value from two of the top investment banks in the U.S. that specialize in these types of acquisitions-all in an effort to make sure the deal would be more than fair to the employee participants and the ESOP trustee, Mr. Purcell said.
``We just matched the highest value and bought it (the company) back,'' he said.
In deciding to re-acquire the company founded by Mr. Purcell's father in 1936, the Purcells weren't keen on having an investment banking firm or someone who knew nothing about the tire industry, the dealership or its history, taking over the ownership.
``Their MO (modus operandi) is to discard unprofitable people, cut costs, do this and that,'' Mr. Purcell said. ``And that wasn't exactly what we had in mind.''
In fact, it was the opposite of their thinking five and a half years ago when they sold the dealership to the employees via the ESOP.
The Purcells viewed this as a way of taking care of the people whose efforts had helped make the retail and commercial dealership one of the giants in the U.S.
``Every employee now has a personal stake in our company's future, and we believe the ownership culture this will create will greatly benefit our customers,'' Mr. Purcell said at the time.
It was much the same line of thinking that led the Purcells to once again become the owners.
``We made a mistake in the beginning,'' Mr. Purcell said, by doing a 100-percent ESOP, where all of the company's stock was issued to an ESOP trust.
That meant that once the stock was disbursed there were no shares for any new hires, so new employees couldn't participate in the ESOP.
Other issues also came up, such as when someone left the company, the ESOP had to pay him or her off, even if that individual left for a competitor.
In addition, the ESOP wasn't conducive to entrepreneurial growth.
As a 100-percent ESOP, the trustee of the ESOP was in charge of the equity of the company. ``And that was all right because we were moving forward and we were making some good moves,'' Mr. Purcell said. ``There was normal income that we had that was paying down the note and making the company worth more. But we couldn't risk.''
And that was the kicker.
As chairman and executive vice president of the dealership, the Purcells didn't want to gamble with the employees' retirement money as they worked to move the company forward.
The ESOP is a retirement program, Mr. Purcell said. ``If we wanted to be entrepreneurial and take chances, that was not the best place for a person to have their retirement.''
The concern was if they made a bad business decision, then ``poof,'' there went the employees' retirement.
Mr. Purcell believes the sale back to him and Mrs. Purcell came at a good time for the employees in the ESOP who are benefiting from an attractive valuation, particularly in light of the recent stock market declines.
``It was a hell of a program for employees for in a little over five years to come up with that kind of compensation over and above the competitive compensation that they worked for,'' he said. ``And that was all given to them.''
Money disbursed from the ESOP will go into the employees' 401(k) retirement plans where they can self-direct it into more diversified investments as they choose. ``So they'll have their money in something that's not as risky as a business like ours,'' Mr. Purcell said.
In place of the ESOP, the Purcells intend to come up with a new program, where all employees would participate equally and one that would be weighted toward better performing employees. The plan could even include a small ESOP, although Mr. Purcell stressed it would not be 100 percent.
As for themselves, the Purcells are looking forward to expanding the dealership sales.
Now, as owners once again, they can take those entrepreneurial risks.
``We're used to (risk),'' Mr. Purcell said. ``We accept it. A lot of people don't live like that.''