The US Bankruptcy Court in Manhattan has given a green light to the company’s plan of converting Prudential Financial Inc stock to cash, and dividing the proceeds between the company and health plan participants. Upon completion of the stock sale, the plan calls for Galey & Lord to take the proceeds, use 57% to fund corporate needs and put the remainder in an interest-bearing account for employee health plan participants, according to a Dow Jones report.
After the proceeds are put in the account, the textile maker then has the option of either making a one-time distribution to participants of the company’s health plan or use the proceeds to offset rising healthcare costs.
According to court documents, Galey & Lord’s holdings were the result of Prudential’s recent change from a mutual life insurance company to a stock life insurance company in a process referred to as demutualization (see also “Decisions, decisions” from the May 2000 issue of Plan Sponsor ). Prudential had been a mutual life insurance company in which its policyholders, including Galey & Lord, had ownership interests, entitling them to participate in distributions of its surplus and to vote on various issues (see . As part of the process, policyholders were entitled to receive distributions in exchange for ownership interests. In August 2002, Galey & Lord received 21,830 shares of stock in Prudential, which was trading at $30.07 a share.
Galey & Lord said the disposal of the proceeds is necessary to remain in compliance with ERISA provisions. The US Labor Department said the company is obligated to put the proceeds from the stock sale in a separate interest-bearing account administered by a trustee for the benefit of employees covered under the health plan.
In addition, the company said the distribution or offsetting health-care costs might help knit together employee morale, which is “currently very sensitive as a result of the bankruptcy proceedings.”