Florida Agrees to Buy U.S. Sugar; Employees Will Get Windfall

The State of Florida has agreed to buy U.S. Sugar, a company partially owned by an ESOP, for $1.75 billion. Details of the deal will be worked out over the next several months. The primary purpose of the purchase is to help restore the Florida Everglades by turning over the land the company owns to the state for environmental restoration. The company will continue some processing operations for up to six years. Laid-off hourly employees will get one year's severance pay, and salaried employees will get two years. Employees will receive incentives to stay on during the transition.

The price offered by the state, which amounts to about $350 per share, is a considerable premium over a previous bid of $293 per share. The approximately 3,800 U.S. Sugar ESOP participants (about 1,700 of which are current employees) own about 35% of the company through an ESOP, so they will divide approximately $650 million among them.

The sale proposal comes just weeks after national publicity for a lawsuit of former U.S. Sugar employees. A front-page article in the New York Times (May 29, 2008) reported that some former U.S. Sugar employees believe they were cashed out of the ESOP at a much lower price than they should have been (Sugar Workers, Given Shares, Wonder Why Price Is So Low). Their argument is based on two prior offers from a family-owned agricultural corporation's bid for the company in 2005 and 2007, both of which were as much as 50% higher than what the employees received. The employees also allege that the former CEO of the company was replaced (and given a $10 million golden parachute) after he urged the board to accept the offer. They now say the current offer just proves their point, but ESOP valuation practices would have required these former employees to be paid out at a non-control price, whereas the offers all included a premium for control. The circumstances of the sale to the state, which clearly only had an interest if it could take full control, suggest that a substantial control premium could have been in order.