68.8 F
Los Angeles
Thursday, May 26, 2022

Firm’s Workers Gamble, Win on Ownership

Employees at Chatsworth Products Inc. faced being laid off in 1991 when the company’s parent announced it was selling their plant, which at the time made shelves for office telephone network gear.

But instead of marching meekly toward a threatened closure, the workers banded together. They pooled their retirement savings and bought the company themselves.

And by making racks for computer mainframes instead of phone equipment, the workers have placed Chatsworth Products on a growth track. Revenues have jumped 400 percent since ’91, and the company has grown from 50 employees to more than 500. Shares of the employee stock, meanwhile, increased from $4 to $63, making millionaires out of some of the early believers.

“I’m in my early 40s, and I’ll probably work a few more years and then retire,” said Dennis Van Lith, a regional sales manager who has seen his $5,500 investment grow 50 times. “I’m really happy with my portfolio.”

Chatsworth Products, which was owned by semiconductor maker Harris Corp. for about 10 years, had been deemed a non-core asset and was on the list of operations to be sold or closed. A group of managers led by then-division chief Joe Cabral organized an employee buyout from Harris.

Cabral, who had worked at the company since the mid-’70s, began a series of meetings with bankers and lenders, but it wasn’t until he happened upon an article about employee buyouts that he knew the idea would work.

To successfully make the purchase at an agreed-upon cost of $2.5 million buyout members needed employees not only to sign on but to invest in the cause, explained Cabral, who later became the company’s president.

Under the employee buyout, the company would organize as an Employee Stock Ownership Plan, in which workers would become shareholders and cash out shares upon retirement or upon leaving the company.

The buyout took two years. Employees bankrolled more than $1 million and a $1.5 million loan. Employees rolled their 401(k) retirement savings into a buyout package.

“We told people if they were interested in going forward, they needed a minimum of $5,000 to invest,” Cabral said. “I said, ‘Consider it Las Vegas money. You shouldn’t feel your retirement is in jeopardy. Don’t do it if you depend on those funds.’ ”

Growth was slow in the early 1990s with the California economy taking a beating. But in 1996, things started to change. The company moved into the computer rack business, added three new plants, increased its employee base and saw revenues grow.

“I rolled over my retirement from Harris. It was my wife who made me decide to do it,” said Manny Gonzalez, production manager at the Chatsworth plant, who invested around $5,000 in 1991 in the first offering. “I knew the company and I knew the people I worked with, so it didn’t seem like that big a gamble.”

The average investment in 1991 was $35,000, earning investors nearly $600,000.

About a quarter of the initial 40 investors have left the company since the buyout most after making small fortunes in retirement savings. “It’s sweat equity, you acquire shares as you work here and the results go into the retirement plan,” said Cabral. “As employees create good results, you create loyalty with a shared benefit.”

Not everyone signed on. “Some people were nervous,” Cabral said. “They felt job security being part of Harris.”

Previous articleEncino
Next articleVoices

Featured Articles

Related Articles