Debt buyout of conpany with ESOP

[Guest lostinfargo]

Company B wants to buy Company A. Company A is mortgaged and financed to the sky. Company B has offered to aquired Company A for debt in a non-cash transaction.

1) What happens to the ESOP?

2) Do the ESOP members get a vote in the aquisition?

3) Are there any unforseen pitfalls?

Please forgive the newbie questions here!

[Marcus R Piquet]

Sounds like Company B is offering to buy the assets (and liabilities) of Company A, so we have an asset sale not a stock sale. In that case nothing happens to the ESOP as a result of the transaction. Post transaction, Company B has no assets or liabilities, so its independent appraiser will probably arrive at a value of zero for the stock of Company B. The ESOP is then worthless. I'm guessing Company B would then simply terminate the ESOP. There'd be nothing to distribute to paricipants as the value is zero.

In an asset sale, a pass-through vote would be required. ESOP participants would vote and would have to approve the sale.

I suppose you could do a stock sale also. Company A could make an offer to the shareholders of Company B for minimal value, if any. At that point ESOP receives its share of the proceeds (zero or close to it) and Company B (now a subsidiarly of Company A) terminates the ESOP.