Davey Tree Flipbooks

49 48 Growth Rings both to the family and to employees. e Davey Company had built a reputation second to none in the tree care industry. Since 1880, Davey had become synonymous with expertise, professionalism, and high-quality service throughout North America. What would happen to the company culture if an outsider, whether in the shape of a business conglomerate or perhaps a competitor, took over? e answer to that question did not sit well with many. However, Joy, Pohl, and Cowan were initially skeptical of the employees' ability to buy the company. Like many at Davey, they had mortgages and other large expenses that left little financial room for the kind of investment required to buy such a large company. Yet, the idea proved enticing: acquiring ownership of the company could be a way of cementing their job security. And so, the employees approached Smith to pitch the idea of them buying Davey Tree. e employees planned to buy the company using a somewhat unproven method centered around an Employee Stock Ownership Plan (ESOP). ESOPs had only just been formally recognized by Congress in the 1974 Employee Retirement Income Security Act – although ESOPs themselves existed in various forms as early as the 1920s, mostly as a retirement vehicle for workers. Coincidentally, Davey's first venture into employee ownership also dates to the 1920s, when M.L. Davey, Sr., allowed select employees to buy non-voting stock in the Davey Company. Under that program, salesmen were limited to buying $10,000 worth of stock and foremen to $5,000. However, the onset of the Great Depression forced the program's termi- nation in the early 1930s. e family saw the employees as a preferred buyer, as they were the most likely to carry on the rich traditions and culture of Davey Tree. Smith agreed the idea merited investigating and suggested the employees should draw up a deal and present it to the family. Bill Ginn, the Cleveland attorney serving on Davey's board of directors, was brought on as legal counsel for the company so that he and his employer – ompson, Hine & Flory – could present options and represent the employees in any negotiations. Approaching Smith and seeking legal consultation were critical early steps in the employee-ownership acquisition process. Joy, Pohl, and Cowan then formed an employee-ownership committee to explore the idea in depth. is came less than two weeks after the family announced their plans to sell the company. e committee canvassed many of the top managers to determine if there was sufficient interest – and ultimately sufficient commitment – to pursue employee ownership. It soon turned out that there was. On Nov. 19, 1977, the top 35 managers at Davey attended a meeting at which the employee committee presented the first purchase proposal. e managers reacted with great enthusiasm, and they urged the employee committee to propose the plan to the Davey family shareholders. At the time, there were 339,685 shares outstanding in the company, a small percentage of which belonged to employees who had acquired them over the years. Davey family members owned 72 percent. e plan called for the Davey Company to purchase 205,805 shares of the Davey family stock and for the employees to buy 40,000 shares of the family's stock. e Davey Company would retire the shares that it purchased, the employees would exercise their stock options, and following all transactions the employees would own 76,511 shares out of a total outstanding of 146,930 – a slight majority at 52 percent. e Davey Company would secure sufficient bank financing for the down payment. e committee gave the first proposal to the Davey family. After considerable discussion, the family agreed that the plan had merit and should be studied further. But they also felt they had many factors to consider before they could decide on the employees' proposal. Of principal concern to the family was the question of financing – could the employees be so leveraged that a bad year might leave them over-extended? Negotiations between the employees and the Davey family slowed to a standstill, and a three-month period of dormancy ensued. By the end of 1977 it was clear the year had been one of record high sales. Davey saw total annual revenue of $42.8 million, which represented a 10.2 percent increase over 1976. Utility services had enjoyed a 22 percent increase in sales, which was due partly to a new contract in California. But overall, the service line had obtained additional work for several existing clients to help boost sales. e rise in sales for 1977 required a lot of equipment. However, during the recession the company had sold many of its older trucks, chippers, and other pieces of equip- ment to completely pay off its debts. As a result, the company had to purchase new equipment in 1977. Not surprisingly, cost control took center stage for the coming year – something already reflected in the company's equipment rebuild program. "Our program to completely rebuild major pieces of equipment is working so well that we extended it to two additional areas in 1977, Charlotte, North Carolina, and Winter Park, Florida," the company's 1977 annual report states. "is program will begin to reduce costs of some of our equipment this year, and hence contribute to increased earnings." During the downtime in acquisition discussions, the employee-ownership commit- tee continued to seek additional financing methods and purchase techniques. e Davey family, meanwhile, in late November retained an outside firm to perform a fair market evaluation of the company and a second firm to evaluate the fairness of the employees' offer. e fair market value of the company, according to the first outside firm, was in the range of $55 million. However, this firm's report represented a value for estate tax purposes. As a result, the valuation might not reflect the true market value that shareholders might receive when selling their stock. e second firm stated that the employee price offer was a "fair and reasonable value for the present shareholders." On Jan. 6, 1978, the Davey family received the first outside offer to purchase the company. e terms of the offer, concisely stated, were for the purchase of all the outstanding common shares for a total cash price of approximately $6.1 million. Chapter 3 A tree is transplanted for replanting for a client during the 1970s. A Davey employee grinds a stump for a residential client in the 1970s.

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