Situation
Our client, a cooperative grocery store wholesaler, wanted to divest a retail subsidiary. Our multidisciplinary team engineered a sale of the sub to an employee stock ownership plan created for the sub and a long-term supply contract between our client and the sub. The sub became an S corporation, so the ESOP structure enabled it to avoid paying any income taxes.
Result
Our client kept a good customer and monetized its investment in the sub. The former sub was enabled to use 100 percent of its cash flow before taxes to repay its debt, which made it feasible to finance the full amount of debt incurred for the sale.