For participants in the Quaker Oaks Co. 401(k), voting on the proposed merger with PepsiCo presents an awkward pair of choices: voting their shares of Quaker stock as shareholders or as employees. The two roles aren't necessarily mutually exclusive. But a position that could put their jobs and investments on the line at the same time places participants doubly at risk.
The move also presents the plan's trustees with a complicated role, not relieving them of ultimate responsibility of what happens to the stock in the plan.
The situation in general should give employees second thoughts on accumulating so much company stock in their 401(k) plans, just as it should companies that encourage large accumulations and restrict the sale of sponsor stock in defined contribution plans. The large position usually isn't enough to block any unwanted acquisition, while it places a big share of participants' wealth at risk if company operations sour, which does nothing to protect jobs.
Because of its setup, Quaker Oats' 401(k) plan passes to participants the vote, unlike in many mergers where the trustees vote the company stock. Participants have 68.5% of their 401(k) assets in the company's stock. That amounts to 6.2 million shares, almost 5% of the total outstanding.
Employee participants have to decide whether to vote their shares for the premium attained by the proposed merger, knowing the PepsiCo acquisition could cost jobs (although that is not certain at this point). It's a tough question. As a way of reconciling their positions, participants could sell any unencumbered shares that are in their plan for a premium now (the stock recently was about 95, more than double its 52-week low) and vote against the merger.
Trustees, however, have only one consideration, looking out for the best interests of the shareholders, a single position participants may envy, even if it is tough to emulate.