There has been a flurry of news about Boca Raton and its effort to be the Corporate City. Let’s take the events of the last few days one by one.
KRS
On Wednesday, Gov. Rick Scott announced that KRS Global Biotechnology plans to expand its Boca operation. The company repackages drugs and intends to start making medical devices. It has 57 employees in the Park at Broken Sound and said it would add 160 over four years.
To encourage that expansion, the state, Palm Beach County and Boca Raton offered a $1.5 million incentive package. KRS will get the money if it adds the promised jobs at the promised average salary of $58,000.
The announcement aligns nicely with the governor’s proposal to eliminate the state corporate tax for manufacturing companies and extend the sales tax exemption for manufacturing equipment. If KRS hits those goals, it will bolster Boca’s reputation as an incubator city for small companies that hope to make it big.
Office Depot
One day, Boca Raton may thank the Federal Trade Commission.
Ten days ago, the FTC blocked the merger of Boca-based Office Depot and Staples, which is headquartered in Framingham, Mass. The unanimous conclusion by the four commissioners was that the merger would reduce competition and thus raise prices for business customers of the two companies.
Last February’s announcement of the merger put groups like the Greater Boca Raton Chamber of Commerce and the Palm Beach County Business Development Board in a tough spot. For years, they and other civic groups have tried to please Office Depot. They urged support for an incentive package that kept the company in this area at its current complex on Military Trail north of Yamato Road. When Office Depot merged with Naperville, Ill.-based Office Max in late 2013, the chamber and the board lobbied to keep the new company here.
But if Staples bought Office Depot, the headquarters would shift to Framingham. Some jobs might remain in Boca, but the buildings on North Military Trail also could be left empty—and could stay empty for a long time. The buildings on Congress Avenue in Delray Beach that once housed Office Depot remain empty seven years after the company moved to Boca.
So now the chamber, the BDB and Boca’s elected officials must hope that Office Depot doesn’t get what it wants. They obviously can’t be too public about their feelings, but according to Boca Raton’s 2014 financial report Office Depot is the third-largest employer in the city after Florida Atlantic University and Boca Raton Regional Hospital. Office Depot’s 2,000 workers make up about two percent of the city’s employment base.
Indeed, Boca Raton should be hoping that the FTC succeeds in blocking the merger. Rajiv Lal, a professor at Harvard Business School, told The Boston Globe that the FTC rarely loses such cases.
Office Depot and Staples likely will base much of their argument on the fact that two years ago the FTC approved the Office Depot-Office Max merger. The commission cited the growth of online competition for brick-and-mortar “office supply superstores” and said the market had changed dramatically since the FTC blocked a proposed Office Depot-Staples merger in 1997.
This time, Office and Depot and Staples again claim that a merger is necessary to deal with growing competition. Amazon is the leading office supply retailer, followed by Apple and Wal-Mart.
The FTC, however, said in its ruling that a Staples-Office Depot giant would shrink competition when it comes to large business customers. “Other office supplies vendors” including Amazon, the commission said, “cannot meaningfully constrain a post-merger Staples. As a result, Staples could charge higher prices and would have a diminished incentive to maintain or improve quality for large (business to business) customers. . .”
The commission distinguished between individual customers and businesses. Internet sites “cannot provide the level of pricing or service” that Office Depot and Staples offer business customers. Only these companies can offer supplies nationwide. Smaller competitors offer just regional service. Office Depot and Staples “cannot show cognizable efficiencies that would offset the likely and substantial competitive harm from the merger.”
A trial before a federal administrative law judge is set for May, unless Staples pulls out of the merger or the companies reach a settlement with the commission. If there were a trial, the loser almost certainly would appeal, which could prolong the litigation for years.
Studies have shown that many big mergers benefit mostly a few insiders. That could be true with the Office Depot-Staples merger.
As analysts have noted, the push for the merger is coming from Starboard Capital Partners. The Connecticut-based private equity firm owns roughly eight percent of Office Depot stock, making it the largest institutional holder. It also had accumulated stock in Staples. Talk of the merger lifted Office Depot stock. In a letter last March, Starboard said the merger could push Staples’ stock to between $32 and $37 a share. It trades now at roughly $10.
The merger certainly would be good for Office Depot CEO Roland Smith. According to company filings and news reports, he would have been due $39 million in compensation, based on figures when the merger was announced. He had begun seeking a merger with Staples while the company was negotiating with Boca Raton and Palm Beach County on incentives for Office Depot after it bought Office Max.
Rather than fight the Federal Trade Commission, Smith ($5 million in annual salary) and Staples CEO Ronald Sargent ($4 million) could spend that time and money figuring out how to restructure their companies. Staples would not have to take on billions of debt from the merger – so much that analysts said the company’s credit rating would be at junk-bond levels. Analysts cited Best Buy as another traditional big-box retailer that is having at least some success adapting to online competition.
Perhaps that restructuring might save only some of Office Depot’s jobs in Boca Raton. But with a merger the city would face the potential loss of every job. Employees who moved from Naperville surely worry about having uprooted themselves for nothing. The uncertainty of restructuring seems better than the certainty of a merger.
Jarden and Newell Rubbermaid
At this point, three Fortune 500 headquarters have their headquarters in Palm Beach County, and two of them are in Boca Raton. Office Depot is 194th on the 2015 list. NextEra Energy, parent company of Florida Power & Light, is based in Juno Beach and ranks 183rd.
At 348 is Jarden Corp., a consumer conglomerate that owns everything from Mr. Coffee to Crock-Pot to K2 skis to Yankee Candle and many more. The company recently bought Josten’s, which makes all those high school yearbooks and class rings. Jarden is south of Office Depot on Military Trail, having moved from Westchester County, N.Y., two years ago. Some employees stayed in New York.
This week came news that another conglomerate, Newell Rubbermaid, wants to buy Jarden for $13 billion. In addition to its namesake Rubbermaid products, the company owns, among many other things, Sharpie pens and Graco baby strollers.
Newell Rubbermaid is based in Atlanta. A spokeswoman said Monday that Jarden does not disclose how many employees are in Boca Raton. Rubbermaid’s CEO expects the merger to result in annual operational savings of $500 million as the new company seeks to gain “efficiency and clout.” The spokeswoman said, “We expect no major changes in 2016. After the transaction closes, we will build detailed integration plans appropriate to the opportunity. Many of the synergies we expect are non-people related.”
The Rubbermaid-Jarden merger should have a better chance with federal regulators. Despite all the companies own, there doesn’t appear to be major overlap.
But the news brings more uncertainty for a city that touts its reputation as a home to corporations. One of Jarden’s brands is Marmot, the outdoor wear company that this year became name sponsor of the Boca Raton Bowl. That commitment seems safe.
The South Florida link (again)
Once again, it seems that so many big stories – no matter where they happen—involve Palm Beach County.
The latest is the terrorist attacks in Paris. The Associated Press reported that one of the guns came from a Delray Beach-beach dealer, Century International Arms. The company is on Congress Avenue, across from the county-state government complex.
Investigators told the AP they don’t yet know how the weapon got from Delray to Paris. The Serbian-made M92 semi-automatic pistol uses a 30-round clip and looks like a miniaturized assault rifle.
The pistol was an exported terrorism tool. Many 9/11 hijackers came to the county to plan their attacks, using tourist or business visas. Between seven and nine lived in Delray. Three others lived in Boynton Beach.
In the current movie “Spotlight,” one of The Boston Globe reporters investigating sexual abuse by Catholic priests in the Boston archdiocese interrupts that project to work on a story about the hijackers. His editor calls to ask, “How’s South Beach?” The reporter answers: “Boynton Beach. Not the same thing.”
Yet another Ag Reserve threat
I have written recently about the repeated small changes that could lead to big, unwelcome changes in Palm Beach County’s Agricultural Reserve Area. Now, a big, very bad potential change could come.
The county and the South Florida Water Management District own a roughly 570-acre tract that they lease to Pero Farms. The county bought the land with $23 million from the 1999 bond issue that voters approved to keep as much farming in the reserve as possible.
The water district, following a policy direction from Gov. Rick Scott, is looking to classify unwanted land as “surplus,” and sell it. The governor tried this in 2011, but his people botched the effort, and it was abandoned.
Developers would love to secure the property. The more large tracts in agriculture, the harder it is to build. The county commission would have to approve a sale. Some have suggested that the county could agree, if the district designated the land as surplus, but attach a deed restriction preventing development.
In fact, any future commission could rescind that restriction, just as any future commission could approve yet more changes after the current commission approved some in October. The property is being used just as the voters intended 16 years ago. If the water management district proposes a sale, the county should refuse.
About the Author
Randy Schultz was born in Hartford, Conn., and graduated from the University of Tennessee in 1974. He has lived in South Florida since then, and in Boca Raton since 1985. Schultz spent nearly 40 years in daily journalism at the Miami Herald and Palm Beach Post, most recently as editorial page editor at the Post. His wife, Shelley, is director of The Learning Network at Pine Crest School. His son, an attorney, and daughter-in-law and three grandchildren also live in Boca Raton. His daughter is a veterinarian who lives in Baltimore.
