The Use of ESOPs to Finance Mergers and Acquisitions

Advantages to C Corporations Many companies that have ESOPs fail to realize that their ESOP can be used to the finance acquisitions with pre-tax dollars. Normally, when debt is incurred to finance an acquisition, only the interest payments are deductible.  Principal payments are not deductible.  However, if the acquisition is financed through an ESOP, both the interest and the principal payments will be fully deductible, and this will be true whether the plan sponsor is structured as a regular C corporation or as an S corporation. In addition, if both the acquiring company and the target company are structured as  regular C corporations, or both convert to C corporation status before consummating the merger, then the shareholders of the target corporation can qualify for tax-free rollover treatment upon the sale of their stock to the acquiring company’s ESOP.  This additional tax savings gives the acquiring company a distinct advantage in ... Read More..

ESOP plans let founders cash out and employees cash in

By Nancy Mann Jackson, contributing writer June 17, 2010: 4:45 AM ET (CNNMoney.com) — On his 81st birthday, entrepreneur Bob Moore signed the papers to hand nearly a third of his company over to his 200 employees. But it’s a gift Moore and his three partners hope will pay off for them as well: By launching an employee stock ownership plan, they’re creating an exit strategy for themselves from the business they’ve spent the past three decades building. We’re growing old,” says Moore, who launched Bob’s Red Mill Natural Foods in 1978 in Milwaukie, Oregon. “We started wondering, ‘What are we going to do with this company?’ We could position it to sell it, but we just felt that the people in this company deserve to have it. They have made it what it is.” An ESOP allows a company to gradually buy out its existing owners. Typically, the company ... Read More..