Uncertainty at locally based companies leads to growing concerns
BY ROD WALTON World Staff Writer & JOHN STANCAVAGE World Business Editor
Sunday, October 30, 2011
10/30/11 at 3:51 AM
Catch up with the latest American Airlines headlines
Catch up with the latest Dollar Thrifty headlines
Catch up with the latest SemGroup headlines
Having the headquarters of a publicly traded company in your hometown can be a key asset, but also a source of steady concern.
Many of the larger Tulsa companies that have shares offered on a major stock exchange also tend to be among the city's better employers.
In general, many need a significant amount of skilled, full-time people. They also typically pay good salaries and offer extensive benefits. Most also are solid corporate citizens and support area nonprofit causes.
"With a headquarters company, more of the money made stays in the community," explained Bob Ball, economic research manager for the Tulsa Metro Chamber.
For that reason, it can be a stomach-churning experience to watch any local HQ company face a merger or buyout. Such actions bring up the possibility of everything from modest job cuts to the business being moved elsewhere.
While large metros such as New York or Dallas may have many public HQ companies, there is a much smaller total in Tulsa.
So for all the reasons above, there's a growing nervousness out there about SemGroup Corp., which is facing a hostile takeover attempt by Plains All-American Pipeline LP out of Houston, and Dollar Thrifty Automotive Group, which recently dodged another hostile effort - this one by Hertz Global Holdings - and likely is not out of the woods yet.
There's also worry that with stock prices generally cheap, other Tulsa companies - particularly energy firms - could be showing up on the computer screens of hedge funds and deal makers.
If that isn't enough to keep civic leaders up nights, add in skittishness about some of the large operations in Tulsa that are operated by public companies based elsewhere.
Foremost in this category is the American Airlines Maintenance & Engineering Center, which employs more than 7,000.
Big losses
American's parent, Fort Worth-based AMR Corp., isn't facing a takeover, but employees and area business officials probably are not sleeping well considering its serious financial challenges. Losses in many of its recent quarters have run into the hundreds of millions of dollars.
As a result, American's executives have been talking about the possibility of bankruptcy for a while now.
While the chances of American actually seeking Chapter 11 reorganization may be low, the prospect brings the same headache being suffered by Tulsa companies facing takeovers: uncertainty.
Will there be a loss of jobs?
Large empty buildings?
Less spending power in the local economy?
Uncertainty works both ways, however. A business could be acquired and left in Tulsa. With a cash infusion from its parent, the local unit might be able to grow at a rate not otherwise possible.
Attractive prices
Longtime Tulsa financial adviser Fred Russell said he totally gets the economics behind takeover moves such as Plains All-American Pipeline's unsolicited attempt to buy SemGroup for about $24 a share. The move, at the right price, may make sense for both sides.
"I think we're in the first phase of a recovery," said Russell, leader of Fredric E. Russell Investment Management Co. "That phase is very tempting to companies like Kinder Morgan and Plains All-American. They see they can buy some assets maybe not at bargain-basement prices but at very attractive prices."
Kinder Morgan's pending $21 billion acquisition of pipeline competitor El Paso Corp. isn't exactly a basement-level financial transaction. The bold move has put fellow pipeline and infrastructure firms on notice to build up scale to play with the big boys.
Williams Cos. Inc. was outbid by Energy Transfer Equity LP in its attempt to buy Southern Union and up its stake in the pipeline sector. Williams is one of the nation's largest natural gas transporters on a daily basis via subsidiary Williams Partners LP's Transco pipeline system, and Russell hardly thinks the company is staying idle after the Southern Union interlude.
"I think scale is the motivator for most acquisitions," Russell pointed out. "Every time someone consumes a prey and gets bigger, that makes it more difficult for everyone else to survive at the same level."
Bigger is better
Williams CEO Alan Armstrong even admitted that energy companies must build up scale to survive in the coming years. "You better be a big player," he said in August at the Friends of Finance speech on the University of Tulsa campus.
Even bigger players, however, may have their eyes on Williams, according to Bloomberg. The business news service noted several weeks ago that, in light of the Kinder Morgan-El Paso deal, Williams was valued at a lower multiple of earnings than any other major U.S. pipeline firm.
Russell takes a long-term view of Tulsa companies and, while he believes Williams is well-positioned to grow on its own, he also admitted that it, too, could be a target.
"Williams is a very attractive company," Russell said. "But only a few (companies) are big enough" to make a run at the 103-year-old Tulsa economic mainstay.
These kind of conjectures obviously worry Tulsans, who have seen their onetime "Oil Capital of the World" decimated by mergers and moves to Houston or Oklahoma City. Companies like Citgo Petroleum, Parker Drilling and Arena Resources packed up the moving vans or were absorbed by buyers.
SemGroup may not be the biggest fish in Tulsa's pond, but the threat of losing it brings back bad memories.
"It's disturbing," Russell said. "It's not the first threat of a breakup, but it comes after many we've experienced in the last five to 10 years.
"It's opening an old wound."
Tech troubles
One scar Tulsa still has was suffered several years ago when Williams Communications Group fell apart. The telecommunications firm, which operated a nationwide fiber-optic network, at one point was hiring 100 workers a month in Tulsa. It even built the One Technology Center, with plans on filling it with about 4,000 workers.
The firm's fast growth and debt demands forced parent Williams Cos. to sell the operation to WorldCom, which ran into troubles of its own. Today, much of what was Williams Communications is part of Level 3 Communications in Colorado. And, the company's ultramodern HQ building in downtown Tulsa now is City Hall.
There have been other tech transactions. One recent deal involved longtime Tulsa HQ company XETA Technologies, which earlier this year was bought out by PAETEC Holding Corp. of Fairport, N.Y. The ink was barely dry on that deal when PAETEC agreed to be bought by Windstream Corp., a Little Rock-based communications company.
Outside the tech category, another lost HQ company this year was Pre-Paid Legal Services Inc. in Ada. New York-based private equity firm MidOcean Partners purchased Pre-Paid, which sells legal service plans, took it private and changed the name to LegalShield.
Losing altitude
Lately, the headlines invoking the most heartburn involve American Airlines.
"While American is not a headquarters company for Tulsa, it's very big. That employee level counts a lot in the local economy," Ball said.
Observers are wondering what will happen to the carrier if it doesn't come out of its economic tailspin soon. The company's cash balance is strong, but other industry benchmarks are weak and net losses are mounting.
Some analysts have wondered when, not if, AMR will file Chapter 11 bankruptcy.
Mary Smith, executive director of the SpiritBank-sponsored Oklahoma Aerospace Alliance, fears for the loss of American's community involvement and economic multipliers if the airline cuts jobs in cost-saving measures. The impact on everything from the Tulsa housing market to secondary jobs would be devastating.
"You've seen it in other communities," Smith noted. "I wouldn't say that if American went away, we'd shrivel up and go away, but we'd come close."
American's well-paid staff generates brisk local spending that supports everything from retailers to dry cleaners. In addition, there are many small supplier firms that are located near the Tulsa plant. They would likely suffer if the carrier fell on hard times.
The airline once had Tulsa on a list of major bases it was studying for closure. American eventually chose to shut its Kansas City maintenance operation.
Many observers think Tulsa's base is too big and too important to be shuttered, but there are no guarantees. Where American goes next, as far as a possible bankruptcy and in its union negotiations will shape the carrier's future in Tulsa.
Smith, the Aerospace Alliance director, puts some faith in what she believes is careful analysis by AMR's executives and board.
"This is a very complex organization and complex situation," she said. "They're looking at the situation and analyzing. They're doing what they can to make good business decisions."
Rough road
Meanwhile, another local HQ company hoped to breath a sigh of relief last week and get refocused as a stand-alone business, but the respite may not last for long.
Hertz said Thursday it is withdrawing its $2.25 billion hostile offer for car-rental firm Dollar Thrifty Automotive Group. The move was the latest in an off-and-on courtship that goes back 18 months.
Along the way, Dollar Thrifty picked up another suitor, Avis Budget Group.
Dollar Thrifty agreed to cooperate with Avis and Hertz in providing information to the Federal Trade Commission to see if a deal with either would pass muster.
Hertz's latest offer came this summer without any FTC opinion. The move failed to gain the support of Dollar Thrifty's board, so Hertz took it directly to shareholders in a "hostile" maneuver.
Response by Dollar Thrifty stockholders appears to have been lukewarm, as Hertz had to extend the offer's deadline several times. The latest extension expired last week.
Staff stress
As the discussions with Hertz, Avis and the FTC wore on, Dollar Thrifty CEO Scott Thompson complained the process was becoming stressful for executives and employees.
He frequently encouraged his workers to stay focused on their primary goal: operating the company as successfully as possible.
The Tulsa Metro Chamber and other civic leaders held an unusual press conference last year expressing support for Dollar Thrifty and publicly stating they thought Tulsa would benefit from the HQ company staying independent.
A merger with Avis, which has about 600 employees in Tulsa, was seen as the next-best alternative, while a Hertz deal was feared due to that company's large existing operation in Oklahoma City.
Hertz said last week that while it is withdrawing its hostile offer, it still is pursuing an FTC opinion on acquiring Dollar Thrifty.
So the stressful days may not be over for Dollar Thrifty's 700 local employees.
And there's more.
"Even though the Hertz exchange offer clearly failed, we may not have heard the last from them or Avis," Thompson said last week, bringing up the name of the company's second suitor for the first time in months.
"We will continue to focus on our company's operations and deal with buyout issues as they come up."
Tulsa companies facing uncertain times
SemGroup Corp. Formerly bankrupt SemGroup LP, the Tulsa midstream energy company rejected a hostile $1.2 billion takeover bid from Plains All-American Pipeline LP. SemGroup's employee level is 140 in Tulsa and 750 overall, down from the pre-bankruptcy 400 and 2,000.
Dollar Thrifty Automotive Group. The company recently fended off a hostile takeover bid from Hertz Global Holdings, but could face a renewed bid from that company and/or a competing offer from Avis Budget Group. Dollar Thrifty employs 700 at its Tulsa headquarters.
AMR Corp.* The parent of American Airlines is trying to avoid bankruptcy while dealing with myriad corporate and industry issues. Stock less than $3 per share. American Airlines employs 7,000 at its Tulsa maintenance base.
Williams Cos. Inc. The longtime Tulsa natural gas entity is spinning off its exploration and production side into WPX Energy and lost out on a bidding war for the Southern Union Co. pipeline assets. Bloomberg recently pinpointed Williams as an attractively low-priced possible takeover target.
Samson Investment Co.** The 40-year-old Tulsa exploration and production oil and gas firm confirmed earlier this month it was seeking a joint-venture partner or even was willing to sell in a deal worth $10 billion, according to outside estimates. Samson employs 700 in Tulsa and 1,200 companywide.
*Not based in Tulsa. **Not publicly traded.
Major publicly traded companies based in the Tulsa area
| Company | Business | headquarters city |
|
AAON Inc. | Air-Conditioning manufacturing | Tulsa |
|
ADDvantage Technologies Group Inc. | Communications Equipment Manufacturing | Broken Arrow |
|
Alliance Holdings GP LP | Bituminous Coal Underground Mining | Tulsa |
|
Blueknight Energy Partners LP | Pipeline Transportation of Crude Oil | Tulsa |
|
BOK Financial Corp. | Offices of Bank Holding Companies | Tulsa |
|
Dollar Thrifty Automotive Group Inc. | Passenger Car Rental | Tulsa |
|
Educational Development Corp. | Book Publishers | Tulsa |
|
Global Power Equipment Group Inc | Electrical Equipment Manufacturing | Tulsa |
|
Helmerich & Payne Inc. | Drilling Oil and Gas Wells | Tulsa |
|
Matrix Service Co. | Support Activities for Oil and Gas Operations | Tulsa |
|
NGL Energy Partners LP | Natural Gas Distribution | Tulsa |
|
North American Galvanizing Inc. | Offices of Other Holding Companies | Tulsa |
|
ONEOK Partners LP | Pipeline Transportation of Natural Gas | Tulsa |
|
ONEOK Inc. | Natural Gas Distribution | Tulsa |
|
RAM Energy Resources Inc. | Crude Petroleum and Natural Gas Extraction | Tulsa |
|
SemGroup Corp. | Oil Storage, Pipelines | Tulsa |
|
Unit Corp. | Drilling Oil and Gas Wells | Tulsa |
|
Williams Companies Inc. | Natural Gas Distribution | Tulsa |
|
Williams Partners LP | Pipeline Transportation of Natural Gas | Tulsa |
Source: Tulsa Metro Chamber
Original Print Headline: Dark clouds over Tulsa
Rod Walton 918-581-8457 John Stancavage 918-581-8314
rod.walton@tulsaworld.com john.stancavage@tulsaworld.com
Associated Images:
Illustration by JAMES ROYAL/Tulsa World
DTAG operations manager Stephanie Ketcham works behind the counter at Tulsa International Airport. Hertz withdrew its latest offer
to acquire Dollar Thrifty on Thursday. CORY YOUNG/Tulsa World file
An American Airlines Boeing 737 takes off from Tulsa. The company is facing serious financial
challenges, and bankruptcy remains a possibility. Tulsa World file
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