NATCHEZ &045; The purchase of a company, or a division of a company, by employees takes much effort, creativity and concessions &045; but it can work.

That’s according to J. Michael Keeling, president of the Washington, D.C.-based ESOP Association, which represents more than 1,200 companies owned through employee stock ownership plans.

ESOPs are usually formed to buy the stock of a retiring owner or as an employee benefit or incentive, with less than 2 percent being used to buy a facility that would otherwise close.

&uot;But certainly there are many examples in America &045; especially among mature industries like paper, steel, metals and fabrications &045; of (ESOP) companies that have survived,&uot; Keeling said.

The most prominent was Weirton Steel in West Virginia, which employees bought from National Steel in 1983 and kept going until just recently filing for bankruptcy.

Another example is Appleton Papers of Appleton, Wis., which was featured in CFO Magazine’s June issue as an example of a surviving ESOP company.

The first step to buying a company or division through an ESOP is finding the money for the purchase.

&uot;If IP wants fair market value, they (employees) have to come up with that amount,&uot; Keeling said. &uot;There have been instances when companies favored employee groups over outside buyers, but I would assume IP’s not going to give that plant to anybody.&uot;

A shell corporation must then be formed to receive financing. Unless funding comes from local investors, it usually comes from a conventional lender.

Also, if employees are willing to make wage concessions or roll over the value of their 401-Ks, they could trade that value in return for the new corporation’s stock.

&uot;You even have managers who take on second mortgages on their homes&uot; to help make the numbers work,&uot; Keeling said.

In addition, state economic development departments &045;in this case, the Mississippi Development Authority &045; can make direct loans or make loan guarantees for such groups, or a combination of the two.

Economic development departments and the U.S. Department of Labor can also grant money for studies of the feasibility of employee ownership.

Wending one’s way through the details can be confusing, but international representatives of unions can help guide employees through the process.

&uot;You can bet they’re getting plenty of support from the union (leaders),&uot; Keeling said. &uot;They have a lot of experience with these (transactions) and know what they’re doing.&uot;

That does not mean such transaction are painless, he emphasized. They usually involve pay concessions &045; &uot;a little less pay versus having a job,&uot; said Keeling &045; and the loss of some benefits.

The good news is that in such a situation, most unions see job protection as one of their major goals, Keeling said.

Some employee groups specify in their ESOP agreement that they will keep the current number of employees, at least for two or three years, and instead look to reduce the number of employees by attrition.

The main thing to remember, Keeling said, &uot;is that people don’t lend you money unless they expect to make money from it. Š You’ve got to crunch the numbers.&uot;