$10.39 Per Share Less Than One-Third What Plan Paid : Parsons ESOP Shares Fall in Value

Parsons Corp. has disclosed to its employees that the value of Parsons shares held by the Employee Stock Ownership Plan has fallen to $10.39 per share, less than a third of what the plan paid to buy most of its shares.

The possibility of a decline in share value had been raised in proxy statements issued by the Pasadena-based engineering and construction company last fall, but the size of the decline exceeded the expectations of even many of the plan’s critics.

Parsons was taken private in January in the largest employee stock ownership buy-out in U.S. history, but the transaction stirred at least some employee unrest and spurred a Department of Labor investigation. Spokesmen for the department said Tuesday that the investigation is continuing.

Several employees who wrote letters of protest to the department have sent new letters of protest to the department and members of Congress, they said. They agreed to discuss their actions only if their names are not published.

Although Labor Department officials would not comment directly on their investigation, communications between the dissident employee groups and Washington has stepped up, the employees say.

“We are certainly aware that there are a number of dissatisfied employees,” a Labor official remarked Tuesday. He added that the department is examining the recent disclosures about the sharp drop in stock value.

The decline is caused largely by the massive debt that Parsons took on to effect the buy-out by the ESOP. The company borrowed $440 million, but it expects to reduce that debt to $270 million by April, according to Dorn Dicker, Parsons vice president and director of corporate communications.

Dicker said the $10.39 value is not out of line with internal projections made by the company during the acquisition process.

“It is right in the ball park,” she said. “By the time the debt is paid off, the value of the shares should rise to the pre-tender amount.”

Under terms of the buy-out, the employee stock plan paid $32 per share for 65.5% of outstanding Parsons shares that it did not already own. The company’s shares had been trading at about $24.50 per share before announcement of the plan

“Ten dollars is lower than even the critics of the plan had expected,” said one critic of the plan, a professional employee.

The disclosure of the $10.39 value came in an “election memorandum,” which gives employees the option of transferring their assets in two earlier retirement plans to the ESOP plan.

The Parsons stock plan stands to pick up about $92 million from employee crossovers, Dicker said. She said the ESOP could use those funds to repay debt.

Although one dissident employee said he planned not to transfer his funds, Dicker said preliminary results show that 90% of Parsons’ employees are electing to reallocate 100% of their retirement funds from the earlier plans to the ESOP. So far, 10% of the ballots have been counted.

THe $10.39 figure was based on a recent appraisal by a Los Angeles valuation firm, Houlihan, Lokey, Howard & Zukin Inc. Parsons will be valued annually at the end of each year to determine the value of each share for retirees.

Several employees were also irked by other disclosures in the Parsons memorandum and other recent company statements.

At least some of them had thought that the company would prop up the value of ESOP shares at the $24.50 price.

The complicated financial plan enacted by Parsons to take itself private included a provision to prop up the value of employee accounts to the pre-acquisition level by adding shares. But, after the acquisition was consummated Jan. 14, the price of shares, including those added, collapsed.

At least some other employees are casting a wary eye on the debt reduction plan under which the ESOP will undertake to pay for the shares it purchased. It appears to some employees that, as the ESOP is reducing its debt, the value of employee-held shares is not rising accordingly.

The ESOP intends to reduce its debt annually by an amount equal to 25% of Parsons’ payroll, according to descriptive brochures distributed by the company. With an annual payroll of about $200 million, the ESOP would be reducing its debt by about $50 million annually.

As that debt is reduced, the ESOP would issue additional shares to employees. But the total value of those distributions would be far less than the $50 million that the ESOP is paying to reduce debt, the employees say.