By Maureen Flanagan
The employee owners of Gas Tech, Inc., a Midwest packaged gas distributor spun off from Union Carbide in 1992, discovered they had a goldmine in their pipeline. In February 1998, when Praxair, the successor of Union Carbide's packaged gas business, opted to buy back the employee-owned stock, the employee owners reaped huge benefits. Not only did they walk away from the transaction with an average benefit of $223,000, but they also had the satisfaction of owning and growing a major Midwest packaged gas company for six years -- a dream many hourly and salaried workers never experience.
The story began in the1980s when chemical giant Union Carbide faced a series of setbacks that led to a change of direction at the company. One move it made was to change the philosophy and ownership of its packaged gas business. It did this by selling off assets through several different ESOP transactions. In one of these transactions, Union Carbide employees bought one of the company's subsidiaries, Linde Gases of the Midwest, and named the new company Gas Tech. At the time, Gas Tech was the leading supplier of packaged gases in Illinois, Indiana, and Wisconsin, employing 280 workers in 18 locations. Its main business was selling portable cylinders of packaged gas to Midwest steel companies, hospitals and welders.
American Capital (NASDQ Symbol "ACAS"), a buyout and specialty finance firm based in Bethesda, Md., was hired to help implement the Gas Tech employee buyout. American Capital structured the deal so that employees bought 55% of the company and Union Carbide's spin-off company, Praxair, retained 45% ownership. Praxair also maintained a right to buy back the company, if it so wished.
To buy the majority stock ownership, employees took small wage cuts and concessions in benefits and pensions. The unionized employees, who were required to vote on these issues, overwhelmingly approved the compensation changes which were exchanged for their stock ownership.
"The Gas Tech sale was one of the most successful medium-sized ESOP transactions ever contemplated and brought to fruition," says John Hoffmire who represented Union Carbide at the time of the sale. Hoffmire, who is now VP of Sales and Marketing at American Capital, sees this transaction as the genesis of his relationship with American Capital. (His company, Hoffmire & Associates, was sold to American Capital in 1997.)
During the six years as an ESOP, Gas Tech thrived and its employees saw a dream come true. The company made operational changes and acquired several small packaged gas companies. Revenues grew - and the stock price increased dramatically. The new company was headed by Joe Clark, who had previously run Union Carbide's packaged gas company for the whole country and had also purchased his own packaged gas company in Indiana.
When the company's stock was sold back to Praxair, Gas Tech was one of the ten largest distributors of cylinder gases, welding equipment and related products in the U.S., with fiscal year 1997 sales of $90 million. It employed some 400 workers at 26 Midwest locations.
For many in the industry, the successful outcome of employee ownership at Gas Tech represented a victory for ESOPs and a triumph for Gas Tech employees. "This was, without a doubt, the most satisfying experience that I had in my entire working career which covered 40 years," Clark said.
Virtually all the Gas Tech employees, in fact, kept their jobs and will continue working for the company in the same capacity as they had before. Their experience as employee owners, though, has dramatically changed the way they now view their jobs, giving them a sense of their worth to Gas Tech's operations and its bottom line. "These workers had never dreamed of owning their own company," said Hoffmire. "For them to go from a position of being wage workers to controlling their own destiny as owners of the company was a wonderful experience."
The experience also validated their investment and the sacrifices they made when they bought the company six years ago, rewarding them beyond all expectation. "In the end," Hoffmire adds, "the workers got more than they ever dreamed of. When they sold off their shares of stock, they achieved an average benefit of $223,000. It was miraculous, a dream come true.and many of them pinched themselves when it was over."
