Employees Acquire Appleton

APPLETON, WI—A new buyout method has placed ownership of a paper company in the hands of its employees. Workers of Appleton Papers have purchased all the company's stock from its European parent, Arjo Wiggins Appleton, in a deal valued at $810 million.

As part of the deal, management and non-management employees voted to transfer $107 million from their 401(a) and 401(k) plans through an Employee Stock Ownership Plan (ESOP) into Paperweight, the acquisition vehicle used by the employees to acquire the company. Paperweight then acquired Appleton, and Houlihan Lokey Howard & Zukin of Washington—Paperweight's financial advisor—arranged financing in excess of $700 million through bank debt, bonds and junior capital in support of the employees' $107 million equity investment in Appleton.

According to the company, the deal creates one of the largest buyouts in U.S. corporate history.

The transaction represents a stray from the traditional leveraged buyout structure. Paperweight acquired 100 percent ownership by combining an S Corporation structure with an ESOP equity investment, an approach that shelters 100 percent of the company's earnings from U.S. corporate income tax.

The ESOP, as a benefit plan trust for company employees' equity ownership, is a tax-exempt entity under federal laws; thus, the S Corporation does not require cash distributions to the ESOP, as its shareholder, because it is not liable for income taxes.

Opportunity
In February, Appleton Papers and Arjo Wiggins Appleton announced that the two companies had agreed to explore a purchase of Appleton Papers through the use of an employee stock ownership plan.

Doug Buth, CEO for Appleton Papers, said the combination of a fair purchase price, the low cost of capital financing, and the operating and financial strength of the company have created an extraordinary opportunity for the employees of Appleton Papers.

"We are taking ownership of a very successful company," Buth notes. "We are the market leader in carbonless and thermal products and we are leveraging our technology platforms to achieve growth through new business development. Ownership provides additional incentive for us to achieve our growth objectives."

Luca Paveri-Fontana, chairman of Arjo Wiggins Appleton, adds that he was pleased that Appleton Papers employees were able to buy the company. "I know the people of Appleton to be a talented and dedicated team. I wish them every success in their efforts to grow their company."

Buth also states the buyout could not have occurred without personal commitment from Appleton Papers employees to the company's plans for growth and development. "The quality of our people and their dedication to taking care of our customers are the greatest strengths of our company. Our employees have made us successful in the past, and I am confident that we will continue that success in the future."

Appleton Papers selected State Street Global Advisors, a division of State Street Bank & Trust Co. of Boston, to serve as the ESOP trustee. The trustee plays a pivotal role in creating and operating the ESOP. The trustee is considered the ESOP shareholder and has fiduciary obligations to act in the best interest of plan participants.

The ESOP provides employees with a beneficial ownership interest in the company. The trustee appoints an independent attorney and a valuation firm to help address those fiduciary responsibilities. Those advisors work as a team with the trustee to determine the fairness and appropriateness of purchasing stock for the ESOP, as well as the ongoing valuation of the company.

Directors
The trustee will appoint a seven-member board of directors to govern Appleton Papers. Management directors will be Buth, who will serve as chairman and CEO; Dale Parker, Appleton Papers' vice president of finance and CFO; and Paul Karch, vice president of law and public affairs and the company's general counsel.

Outside directors will be Nicholas Davis, Richard Kenney and William Sikora. Davis is president of Montana Investment Advisors, Bozeman, MT. Kenney is a business consultant from Wisconsin Rapids, WI. He served as CFO for Consolidated Papers prior to its acquisition by Stora Enso in 2000. Sikora is a business consultant based in Houston. The fourth outside director is yet to be named.