Owners at Work usually devotes its space to discussing how employees buy businesses and how employee-owned businesses have improved their operations. But employee owners, on occasion, also sell.

Within the last year, employees of two successful, 100% employee-owned firms in Ohio have voted to sell part or all of their stock to outsiders. Republic Engineered Steels employee owners voted four to one to offer approximately two-fifths of the company on the public market, using the proceeds to pay out the employee preferred shares plan and cutting the company’s financing costs; Republic employees retain majority control of their company. At Textileather in Toledo, however, employee owners voted overwhelmingly to sell the entire company to Canadian General Tower, relinquishing control to outside owners.

 Over the last five years, the employee owners at Textileather Corporation have orchestrated a turnaround that could make Wall Street envious. But after such tremendous success, Textileather's employee owners recently decided to sell. There are complex reasons for Textileather's success, and the decision to sell. But no matter what the cause, the results are clear. In 1991 the employees bought a struggling business in a declining industry because nobody else wanted to. In 1995, the employees sold the business for approximately 160% of the previously appraised market value, and secured a contract for future wage increases and employment growth and new capital investment.

When the employees bought the business in 1991, it did not look very promising. Textileather had been part of GenCorp and was making vinyl products for the automotive industry. Unfortunately, the auto industry was in a slump and moving away from the use of vinyl. In addition to the poor market prospects, the plant faced complex environmental and regulatory problems as well as problems with declining quality and productivity. As a result, GenCorp could not find any interested buyers for the business. So, facing a shutdown, the employees bought it themselves.

A strong union/management team led the employees through the buyout. Concessions from the Amalgamated Clothing and Textile Workers (ACTWU) members, help from the state of Ohio, and the assistance of investment bankers at American Capital Strategies made the deal possible. Once the employees began working for themselves, the bottom line improved dramatically. After only one year, productivity was up 28%, scrap was down 40%, and machine downtime was reduced dramatically. The industry shakeout shut down some competitors and Textileather increased its market share. The employees even managed to prepay some of the debt and still take home profit sharing checks worth $1,800 to $2,000.

In the past, Textileather's employee owners have chosen not to sell. "It's like when you get a new bike. You are not going to let the neighbor kid ride it because it's new and shiny and you don't know how fast it can go." explained Steve Walko, Textileather President. "After a couple of months you might let the neighbor kid ride it. That's kind of like us: we wanted to try it out and see what we could do." The employee owners at Textileather have shown that they could fix up an old jalopy and turn it into a strong, fast, efficient machine. So now that they have the machine running well, why sell?

"For security reasons," said Duwane St. John, president of ACTWU local 224T. As a non- diversified pension plan, the ESOP offers little security. A downturn in the industry could cost Textileather's employee owners their jobs and their only retirement pension. Now, Textileather's employees can invest their profits in more secure and diversified pension plans, like a 401K or an Individual Retirement Account.

But the deal offers far more than just diversifying the pension plan. The agreement to sell to Canadian General Tower includes provisions for new capital investment and diversification into new markets. "The vinyl market is vulnerable and this deal gives us access to other markets," ACTWU local president St. John added.

"When is a good deal a good deal?" asks Walko. "When we got an offer for 60% over the value of the stock, we thought that was a good deal." The rest of the employees thought it was a good deal too. Over 96% of them voted to sell the company to Canadian General Tower. "Each employee received about $60,000 for their stock," said St. John. The employees also received an immediate 10% raise and cost-of-living raises in years two and three of the new labor agreement. Also included was a commitment to provide new capital expenditures in the Toledo facility enabling the plant to expand its product lines into graphic arts and pool liner businesses. Canadian General Tower additionally agreed to transfer business from Canada to Toledo over the next three years. "This new capital investment and the transfer of business should generate about forty or fifty new jobs," said St. John.

Why was Canadian General Tower willing to do so much for Textileather? According to Walko, there were four reasons: Canadian General Tower (CGT) was at full capacity and Textileather has excess manufacturing capacity. CGT technology and Textileather's fit together quite well. The two companies’ strengths complement each other. "The automobile industry is looking for suppliers who can supply the whole thing." Walko said. "Together we have that full capacity." Finally, CGT wanted access to the U.S. markets. They wanted a presence on both sides of the border," explained Walko.

Did giving up ownership rights have much of an impact in the decision to sell? "No" says St. John, "we didn't see much of a change from when we were a traditional company to that of an employee-owned company. Even though we had three seats on the board we didn't think our interests were being heard."

"When you add it up its a pretty good trade for ownership," said Walko. "We got a premium for our stock, the commitment to invest in capital and transfer work to Toledo provides security, and everybody got a raise." In addition, the employees got the right of first refusal if Canadian General Tower ever decides to sell the company.

Textileather employees bought the plant not because they wanted to own a vinyl company. They bought the plant because they wanted to save their jobs. In selling, the employee owners continued to pursue the same goals: to insure job security, to expand employment, and to provide long-term economic stability for employees. It would not have seemed like a probable outcome in 1991, but by working smarter and by working together, the employees at Textileather beat the odds and won.