Companies start to take a private tack

TRIGAUX E-mail: Click here Archive

© St. Petersburg Times
published August 28, 2002

Remember when young, hotshot private companies were panting to go public in splashy initial public offerings?

Well, there's a new motto for these IPO wanna-bes: Never mind.

Thanks to Enron and its wormy pals, courtesy of a postbubble stock market and cynical investors, and with due credit to the brand new and tough corporate fraud law, going private is hotter than ever.

Talk about corporate turnarounds. The momentum to flip from public to private is national, but the topic has also landed on the local front burner. It was noted several times on Monday when a round table of nine corporate governance professionals -- kind of a mini-brain trust of local talent -- gathered to discuss investor jitters and the new fix-corporate-America legislation with Rep. Jim Davis at the University of Tampa's Sykes College of Business.

The quickly enacted Sarbanes-Oxley Act, signed into federal law July 30, is aimed at cracking down on all the Enron-WorldCom-Global Crossing chicanery. In doing so, it makes new governing demands on businesses and also forces extra expenses of as much as $1-million a year on small public companies.

Some post-IPO businesses don't like the feel of the new climate, including the harsh public scrutiny, one bit.

"Clients ask, 'How do I get out of this?"' Dave Felman, a Tampa attorney with Hill Ward & Henderson, said at Monday's round table. The client choices? Never go public. Sell out. Or go private.

"A lot of companies are thinking about going private now that did not consider such a move before," said Bob Grammig, a Holland & Knight attorney who specializes in public offerings. "I see a chilling effect on the IPO process."

Chilling? Any colder, and the IPO market will be parked next to Ted Williams in an Arizona cryonics lab. The Tampa Bay area has had just one IPO this year: Tampa's Liquidmetal Technologies, whose shares are off 55 percent since its IPO debut in May.

"There's a trend by companies that never should have gone public to now go private," said investment banker Barry Alpert, a managing director at St. Petersburg's Raymond James & Associates. Alpert had raised the subject at a recent Foley and Lardner seminar in Tampa appropriately titled: "Corporate Governance in a Post-Enron World."

Some Florida companies already are taking the private plunge.

In Boca Raton, online aviation parts distributor PartsBase Inc. this week accepted a buyout offer from a private company owned by PartsBase's CEO and majority stockholder. PartsBase went public in 2000.

Miami's Burger King, the world's No. 2 hamburger chain, owned by publicly traded Diageo plc, is about to be sold to a private equity consortium led by buyout specialist Texas Pacific Group.

More public-to-private deals are coming. And why not?

In a bull stock market, publicly traded stock amounts to no-cost capital that lets a company expand operations, pay off its debts, acquire competitors and establish new businesses. Going public in a hot market also makes quick millionaires of company executives and major investors.

Not so in a bear market. Falling stock prices mean that public shares are worse currency than cash: cheap today, cheaper tomorrow. Billions of dollars in executive stock options are worthless. Many public companies (including a bunch in the Tampa Bay area) face delisting from the stock exchanges. Others are heading to bankruptcy court -- like this week's local victim, Uniroyal Technology.

"The widespread drubbing of public-company valuations in the stock markets is taking a toll, especially upon small- and mid-cap public companies," said Miami investment banker James S. Cassel, president of Capitalink L.C., who spoke at a recent conference dedicated to public companies going private.

Conglomerates as large as Hyundai, Motorola and Xerox are among those mentioned in the past year as participating in talks about turning slow-growing or money-losing divisions into private companies of their own.

Earlier this month, St. Petersburg's Insurance Management Solutions Group decided to call it a day as a public company. Bankers Insurance Group, a majority investor in IMSG, said it plans to buy out minority shareholders of the troubled insurance outsourcing company that it spun off 31/2 years ago.

In Tampa, SRI/Surgical Express, which supplies hospitals with disposable surgery products, has watched its stock price fall from a 52-week high of more than $41 a share to less than $10. This spring, prominent SRI investor Lee R. Kemberling acknowledged he would like to see the company go private.

In the 1980s, leveraged buyout firms earned a lousy reputation by using junk bonds to exploit the companies they bought.

Now, the boom in public companies going private via LBO firms is seen more as a divine rescue. Being publicly owned used to seem glamorous and self-enriching. In today's post-Enron world full of angry investors and federal prosecutors looking for payback, it seems downright dangerous.

Don't forget. All those executives on parade in handcuffs used to run public -- not private -- companies.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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