From time to time, I see that statement about or between former CNW employees on this forum. What’s the story behind that?
When the Chicago & North Western became employee-owned in 1972, the stock became available to any employees. One share cost an amount that seemed exorbitant at the time, and I think you had to buy the stock in multiples of ten shares, But the people who did buy in made out like bandits–the stock split sixty-for-one in the middle 1970s! At that time the price of the new shares was reduced (but not to 1/60 of the original price–the value of their holdings still multiplied something like 11 times), and a payroll-deduction program instituted. I jumped in that time, but the stock didn’t behave too abnormally thereafter. It did split 3-for-1 some time after it was again being offered to the public. And when UP bought all of the outstanding CNW stock, it was at a price of something like 25 percent over what it had been trading for on NYSE at that point.
Poking around the net, I found some numbers on the deal. The initial 1972 deal for employees was for a minimum purchase of ten shares at $50.00 a share. The 60 for 1 split and the subsequent 3 for 1 noted above by Carl would have brought an initial 10 share holding to 1800 shares.
In 1989, the UP, some Northwestern executives and two investment companies did a Leveraged Buy Out (LBO) of the employee owned railroad and its holdings for $950 million. I am not sure if employees holding stock could retain a stockholding or had to accept cash for the buy out. If they were able to retain their shares, they then would have received $35 a share cash payment when the UP acquired the railroad in 1995.
Bottom line, a $500 investment in 1972 would have become $63,000 in 1995.
If I have the whole deal correct, that’s a decent return.
Thanks for the info, Jay…I sold out directly to the UP when it was required.
The new share price, after the 60-for one split, was $11.00 per share. I participated in payroll deduction, and had to buy 50 shares of the new stock. Since the stock was not publicly traded, it’s safe to say that the $500 initial investment would become $19,800 dollars, right then.
The three-for-one split was more conventional, with a new share being one-third of the price of the old share.
With the benefit of hindsight, I suspect most respond to the question with a resounding “Noooo!”
In fairness to anyone who had the oppurtunity in 1972, the minimum investment of the $500 ground floor buy-in would have been a good chunk of change for most people. Given the financial condition of the C&NW and other railroads at that time, there was a big risk that the investment could have been lost. Can’t blame any one who didn’t bet the farm.
I’ve worked with a couple of old heads who didn’t buy in. Probably more because of the cost, but also because their fathers also did, or had worked for the CNW and told them they’ld be throwing their money away.
Jeff
Another example of Hindsight being 20/20!
Sam Walton used to go around Bentonville, Ar ,telling people to buy Wal*mart shares, he said," Go out and borrow it if you had to, but buy".
Lots of his employees did and that’s why there are so many millionars in NW Arkansas today! His stock split something like 17 times before Sam died. Hind Sight! Go Figure.
There was a little more to the CNW stock plays than you relate. Since I didn’t do any research before writing this. my dates might be slightly off, but the sequence of events should be correct.
You are correct that, in 1972, an employee group bought out the railroad, and went private (in other words, the railroad’s shares were no longer traded or available to the public on stock exchanges). This was essentially an early leveraged buyout, which promised enourmous returns,IF it worked out. But, since it was heavily financed by debt, it also carried an enormous risk of failure, particularly given what was happening in the rail industry at the time. It was a very near thing for a number of years, and the company barely avoided a bankruptcy, which would have completely wiped out the employee investors .
In 1983 (or so) the company went public. At this point, the company ceased to be employee owned, and its shares were available to the public just like other publicly trade corporations
That is true, but the executives of Enron did the same thing. More than one 401(k) consisted entirely of Enron stock, and those folk do not/will not enjoy the retirement they were preparing for!
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