Employees to Get More Shares to Offset Price Drop : Parsons Denies ESOP’s Value Fell

The value of individual employee retirement accounts at Parsons Corp. has not dropped sharply as a result of a recent appraisal of the company’s shares held by an employee stock ownership plan, Parsons officials said Wednesday.

Company officials said an article in Wednesday’s editions of The Times incorrectly left the impression that individual ESOP participants at Parsons had seen the value of their holdings in the plan drop to one-third of the price the ESOP paid for Parsons shares.

The story was based in part on comments from employees who said they have been left worse off because the company was recently appraised at a value of $10.39 per share, down sharply from the $32-per-share price that the ESOP paid for most of its shares.

The confusion arose because internal critics of the Pasedena-based engineering and construction firm’s ESOP probably do not fully understand that they will receive additional shares in their accounts to offset a decline in share prices, Parsons officials said Wednesday.

Parsons Chairman William E. Leonhard said that each employee will receive enough Parsons shares to support the value of their account at the pre-acquisition trading price of $24.50.

That will be accomplished by increasing the number of shares in each account by a factor of 2.36, Leonhard said.

Part of the confusion may arise from the fact that the exact number of additional shares employees will receive has not been included in recent written information that company officials supplied employees and has not yet been officially posted in statements on employee accounts.

Employee Groups Briefed

“It is just a matter of timing,” Leonhard said, because the company had to await the appraisal before it could determine how many shares to credit to employees.

Employee groups, however, have been briefed on the additional shares in recent days, according to Thomas L. Langford, Parsons’ chief financial officer.

Moreover, Langford said, the company has striven to educate employees fully about details of the complicated ESOP plan.

The recent appraisal that set the ESOP shares at $10.39 was conducted by the Los Angeles valuation firm of Houlihan, Lokey, Howard & Zukin Inc. Such appraisals are to be conducted annually to set the value of employee shares.

Employees retiring in the first seven years of the ESOP plan are guaranteed to receive $32 for their ESOP shares.

The appraisal that set Parsons shares at $10.39 reflects several factors that primarily reduced the overall value of Parsons because of the large debt that the company took on to effect the buy-out.

When the ESOP made its tender offer of $32 per share last fall, the company’s then outstanding 24.7 million shares were worth $790.4 million.

Today, the company has 33.7 million outstanding shares, which would be worth about $350 million at the $10.39 price.

The company bought the shares for $560 million in internal cash and short-term and long-term debt.

Thus, Langford said, the original value of $790.4 million at the time of the buy-out was reduced by $560 million to $231 million.

But the recent appraisal of $350 million reflects about $119 million of added value as the result of various benefits of ESOP ownership, he said.