MidCon Corporation Does $3 Billion ESOP

In the second-largest ESOP transaction ever, Occidental Petroleum is setting up an unusual leveraged ESOP for the 1,850 employees of its MidCon natural-gas pipeline division. The ESOP would borrow $3 billion to buy a special class of convertible preferred shares that would track the value of MidCon, but that would be convertible into Occidental Petroleum stock. MidCon will finance the transaction with a 30-year note. The shares will be similar to the "H" class shares that General Motors created to track the performance of its Hughes Electronics unit. As far as we know, this is the only transaction of its type ever put in place.

The transaction allows Occidental to deduct the dividends paid on the preferred. MidCon will operate as a stand-alone business wholly owned by Occidental, but might be spun-off in the future, perhaps by exchanging the preferred shares for a new class of common or taking MidCon public.