Fort Smith area running low on publicly held companies

If completed, the ABB-Baldor deal will leave only two publicly held companies based in the Fort Smith area — Fort Smith-based Arkansas Best Corp., and Van Buren-based USA Truck.

Zurich, Switzerland-based ABB announced Nov. 29 the move to acquire Fort Smith-based Baldor in an all-cash $4.2 billion deal expected to close in the first quarter of 2011. The Baldor board unanimously agreed to the deal, and ABB said it will keep the corporate operation in Fort Smith. The two companies announced today (Dec. 8) the start of the cash tender offer of outstanding shares of Baldor. Shareholders have until Jan. 10, 2011, to tender the shares at the $63.50 offer.

Just a few years ago, the region was home to four publicly held companies, including Baldor and Beverly Enterprises. Beverly became a private company in 2006 following a $1.8 billion buyout by San Francisco-based Fillmore Capital Partners. The equity firm changed the name to Golden Living, and kept the headquarters in Fort Smith.

In early 2011 and barring an ABB-Baldor dealbreaker, the region will be home to two publicly held companies — both of which are involved in the trucking sector.

Will the decline in number of publicly held companies will have a positive, negative or neutral impact on the regional economy? Of the four people interviewed by The City Wire, three believed the decline will not have a negative effect. But those beliefs come with exceptions.

“I think the decline in the number of publicly held companies will have a neutral impact on the regional economy,” said Acting City Administrator Ray Gosack. “The acquisition of Beverly Enterprises by Golden Living seemed to have little to no impact on the economy. In fact, being privately owned eliminates the possibility of a hostile takeover allowed to happen by stock fund managers who are more interested in quick returns than the long-term viability of an important corporate citizen of the community.”

The better question is what will ABB bring in terms of growth strategies, said Jeff Collins, economist for The Compass Report and the former director of the Center for Business and Economic Research at the University of Arkansas.

“It is the change in form of ownership that brings with it new strategies for growing the business that could impact the future of Fort Smith area companies,” Collins explained.

Indeed, ABB CEO Joseph Hogan said the company sees Baldor as a ticket to gain market share in the North American market during a time when new energy efficiency standards will create increased demand for Baldor products.

ABB and Baldor officials said in a joint conference call on Nov. 30 with European analysts that the U.S. market for electric motors could expand up to 15% in 2011.

“This is really a new market for us,” in that the U.S. is still 25% of the global GDP, Hogan explained to analysts who questioned why ABB would spend $3.1 billion to acquire Baldor shares and another $1.1 billion to clear Baldor’s debt.

Also, new energy efficiency standards kick in in Europe in June 2011, with ABB expected to benefit from the Baldor R&D and experience in pushing new motors.

John Taylor, senior vice president of John Taylor Financial-Sterne Agee and a member of the board of directors at Fort Smith-based Benefit Bank, said it’s more important to focus on building the job base than what type of companies are creating jobs.

“The whole public-versus-private companies issue is not nearly as crucial to our area as  is a growing employment base,” Taylor explained.

Growing the employment base has been especially difficult in the Fort Smith region. The Fort Smith metro area was the only one of eight Arkansas metro areas to see an increase in the October unemployment rate. According to stats released Dec. 7 by the U.S. Bureau of Labor Statistics, the Fort Smith metro jobless rate increased to 7.8% from a revised September rate of 7.6%. The number of unemployed in the Fort Smith metro area was 10,385 in October, down 4.3% compared to October 2009, but up 55.9% over the 6,659 unemployed in October 2008.

Greg Kaza, executive director of the Arkansas Policy Foundation, reinforced Taylor’s note, saying that overall job growth “whether by small businesses or large public companies” should be the focus of community leaders.

“A healthy economy is one that is creating jobs and income at an average or above average rate,” Kaza said.

Taylor said publicly held companies are easier to monitor, which is valuable to community leaders interested in the health of area companies.

“The one negative is the lack of visibility or news that is available from private concerns as opposed to the public SEC (Securities and Exchange Commission) and other filings with publicly traded enterprises,” Taylor noted. “Take the example of Golden Living, formerly Beverly enterprises. What do we know about their plans, their employee head count? Not much. But the more vital issue is that they are still here providing good jobs with good benefit packages. If ABB really makes this area the North American headquarters that will be great news for the future.”

Chamber of commerce officials and other economic developers are likely to suffer a loss of marketing potential from the decline in publicly held companies based in the area, Kaza said.

“There is no doubt that a highly-visible public company can do more to attract money and attention to that community. … So to go from four to two (publicly held companies) from a marketing and image standpoint, it’s not good,” Kaza said.