THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, August 28, 1994 TAG: 9408270210
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY EDMUND SANDERS, LOS ANGELES DAILY NEWS
LENGTH: Long : 263 lines
In March, employees at Valencia, Calif.-based MicroAire Surgical Instruments Inc. were called to the company's parking lot for an announcement most had been expecting for months: MicroAire was leaving California.
The company's 100 workers had known for nearly a year that managers were considering a move. So did state and local business-retention officials.
But MicroAire was no Hughes Aircraft Co. or Thrifty Corp., whose decisions to move thousands of workers out of the region made headlines and aggravated the state's already troubled economy. The Valencia company's departure would barely register as a blip on the state's economic radar screen.
And yet, MicroAire's 12-month deliberation over leaving California is an illustration of a drama that has been played out by hundreds of smaller firms that have grown frustrated with doing business in California.
According to the Economic Development Corp. of Los Angeles County, more than 400 firms - mostly small- to medium-sized ones - have left Southern California since 1990, taking with them more than 67,000 jobs. And uncounted other firms have quietly left the state without notice, according to the corporation.
MicroAire's search for a new home helps explain what is driving these small firms away.
Company officials made themselves available as they were courted by other states, as California business-retention officials attempted to keep MicroAire from leaving and as the company ultimately narrowed its list of possible sites and decided to move to Charlottesville.
What emerged was a picture of a small, successful company looking to grow and boost profits - and a company president whose negative impression of California was the driving force behind the relocation.
Some major issues for MicroAire were:
Company officials expected to be swept off their feet by other states eager to win their business, but they were disappointed by the lack of specific financial incentives. Only two states made firm cash offers, including a last-minute offer of $500,000 by Charlottesville.
Though MicroAire managers complained about doing business in California. But the relocation was really fueled by a desire to boost profits and a fear that California's problems would eventually catch up with the company.
State and local business-retention officials knew that MicroAire was considering leaving the state, but the sum of the state's retention efforts included one meeting, some telephone calls and a form letter from the governor's office.
MicroAire Chief Executive Judy Lindstrom-Foster's personal dislike of California - its crime, traffic and, particularly, its high costs - was a strong factor in the relocation. A Virginia native, she owns a home not far from the eventual choice of Charlottesville. Yet the move will benefit the company as well, shaving more than $400,000 a year from MicroAire's bottom line.
MicroAire began in 1974 as a seat-belt manufacturer in the Los Angeles-area city of San Fernando and was bought in 1978 by Chicago-based Marmon Group Inc., the conglomerate controlled by the Pritzker brothers.
The new owners changed MicroAire's name and focused on designing and marketing surgical and medical products, specializing in blades and drills used in dental, reconstructive and plastic surgery.
Total sales worldwide reach about $25 million.
The relocation of MicroAire can be traced to 1991, when Judy Lindstrom-Foster was hired as chief executive officer.
Lindstrom-Foster is a forceful executive with a decisive management style that she traces to her experience as a civilian nurse in the jungles of Vietnam.
``After that experience, corporate life didn't bother me,'' she said.
Lindstrom-Foster served for two years, in 1969 and 1975, with Medico, a civilian medical team. Her last tour was shortened when she was shot by a sniper.
While recuperating, Lindstrom-Foster decided to try her luck in the business world, working her way up over the next 20 years in the medical products industry, chiefly with Baxter International Corp.
At her previous job at an Irvine, Calif.-based subsidiary of Baxter, Lindstrom-Foster oversaw - at her bosses' request - the relocation of the division to the company's headquarters in Deerfield, Ill. The cost savings were still fresh in Lindstrom-Foster's mind.
Lindstrom-Foster also made no secret about her views on California - both from a personal and a business perspective.
``I don't like California,'' she said. ``It's not the dreamland that it always thought it was - and it's getting worse.''
Lindstrom-Foster says personal and corporate taxes are too high; businesses get no respect; regulation is burdensome and costly.
``California is basically a socialist state, and somebody has to pay for all that,'' she said. ``It's going to be business.''
A new corporate home, Lindstrom-Foster believed, could boost company profits and improve employees' quality of life.
But despite Lindstrom-Foster's opinions about California, neither she nor anyone else at MicroAire could point to problems that had seriously hurt the company.
Chief Financial Officer James McMunn said MicroAire had remained profitable for the past decade.
In March 1993, federal officials announced plans to close dozens of military bases nationwide. Lindstrom-Foster saw her opportunity.
``I figured those communities that were hit would be hungry to replace those jobs,'' Lindstrom-Foster said.
She gathered her top managers into the conference room and began brainstorming about possible relocation sites. The group came up with nearly two dozen names.
News that another California company was contemplating a move began to spread among business recruiters in other states, who have found California to be fertile hunting ground in recent years.
MicroAire Surgical Instruments was in play.
In Florida, economic development officials in Brevard County swung into gear. Within a few weeks, Maria Clark, president of the Economic Development Commission of Brevard County, traveled to Valencia with materials to pitch her region.
``This was quite a hot prospect for us,'' Clark said.
Other states also sent materials and letters, touting everything from their weather to their work force.
Lindstrom-Foster was pleased with the initial response.
In June 1993, Lindstrom-Foster hired a new chief financial officer, Jim McMunn, and put him in charge of the relocation search.
McMunn, former controller for a division of Rockwell International Corp., had supervised two corporate relocations over the previous five years. He did not relish his new assignment.
``I don't know why they spend money on this junk,'' McMunn said, motioning to the pile of pamphlets, binders and brochures outlining everything from annual rainfall to the price of a steak in cities across the country.
McMunn's first step was a shrewd one. He compiled a list of all the possible relocation sites that had been discussed before he arrived, about 20 cities, and gave the list to Lindstrom-Foster.
``Check off the cities you would consider living in,'' he told her.
In a single stroke, the site list was narrowed to seven cities. Those like Phoenix, Las Vegas, Albuquerque and more than a dozen others fell off because of Lindstrom-Foster's preference for seaside communities.
``I'm not stupid,'' McMunn said. ``The first consideration is where the CEO wants to be.''
Remaining on the list were Norfolk; Houston; Mobile, Ala.; Savannah, Ga.; Charlestown, S.C.; Brevard County, Fla.; and Salisbury, Md.
There was also a long shot later added to the list: Charlottesville.
In March, Lindstrom-Foster had received a call from Dr. Richard Edlich, a professor of plastic surgery at the University of Virginia.
Edlich was intrigued by a MicroAire product he read about in a medical trade journal, and he telephoned the company to learn more.
Lindstrom-Foster said the two had an immediate rapport. Fifteen minutes later, they were discussing possible joint ventures between the university and MicroAire.
Later, Lindstrom-Foster casually mentioned that the company was considering a move.
``Well, have you thought about Charlottesville?'' Edlich asked. The university had purchased some forest land several years earlier and wanted to develop an industrial park near the campus, he said.
Lindstrom-Foster was skeptical. ``Is there anything out there now?'' she asked.
``Not really,'' Edlich replied.
As a courtesy, Lindstrom-Foster agreed to add Charlottesville to the list. But privately she doubted it would amount to much.
By late June, officials in California also had learned that MicroAire was mulling a relocation by reading a newspaper article about the possible move.
Officials at the Economic Development Corp. alerted the California Trade and Commerce Agency, the state unit responsible for keeping companies from leaving the state.
The agency put together a ``red team'' of officials from the state, county, city and Southern California Edison Co., the investor-owned electric utility firm.
MicroAire was exactly the kind of small, growing company that California was having trouble keeping. Despite its best efforts, the red team couldn't persuade MicroAire to stay.
MicroAire wanted a site where it would recoup the estimated $1 million in moving costs over three years.
As he began traveling to possible cities, McMunn began to doubt whether such a savings would be possible. To his surprise and disappointment, other states and cities were not showering the company with firm offers, only fancy brochures.
A few cities came through with some financial incentives, though hardly the kind of packages MicroAire hoped for. Savannah offered $50,000 to relocate top managers and up to $20,000 for pre-relocation visits. Houston offered a property tax break if the company moved into a particular business park.
Norfolk officials hinted about making a land deal, but apparently never came through.
``We're not interested in buying a business to relocate here. We don't sell on the basis of giving away,'' said Robert B. Smithwick, Norfolk's economic development director.
``There are companies that go to cities because the city is willing to rebate taxes or abate taxes. We don't do that,'' he said. ``It never has been our policy. It doesn't require talent. We're not interested in that type of business.''
Only Salisbury, Md., came through with a firm offer: land at $1 an acre, valued at $500,000.
``If I sound bored by all this, it's because I am,'' McMunn said.
Meanwhile, Edlich and his friends at U.Va. were putting together an incentive package that would lure MicroAire to Charlottesville.
University officials believed MicroAire would be an ideal anchor tenant for a still-unbuilt industrial park located near campus.
An affiliation with a private company like MicroAire promised to help Edlich's plastic-surgery department focus its research into areas and products that would find a commercial market.
The university offered access to its labs and even promised to appoint a MicroAire manager as visiting professor.
Lindstrom-Foster was beginning to see the possibilities of a university affiliation. For MicroAire, close ties with the university would provide the company with an outlet to test and develop its products.
By October, McMunn had narrowed the candidates to Mobile; Reno, Nev.; Salisbury, Melbourne, Fla.; and Charlottesville. Each of the cities promised about $400,000 to $500,000 annual savings, with a payback - after moving costs - within four years.
From a financial standpoint, Salisbury offered the biggest savings. Reno was also attractive because the cost of moving to a Western state would be about $300,000 less than an East Coast move.
The initial results were disturbing to Lindstrom-Foster, who was leaning toward Charlottesville. But according to McMunn's report, Charlottesville would require the longest payback of all the leading candidates.
Lindstrom-Foster contacted the university.
``I like the area, but you need to move higher on our list,'' she told the officials.
Edlich turned to Hovey S. Dabney, chairman of the Jefferson National Bank and rector of the university's board. Dabney recognized the chance to use MicroAire to launch the long-delayed industrial park.
``I thought it was essential to get MicroAire here,'' Dabney said.
Dabney arranged for the university's real estate foundation, which was responsible for the industrial park development, to earmark $500,000 for MicroAire.
Dabney called Lindstrom-Foster from his car phone. Would $500,000, paid over five years, make a difference in MicroAire's plans?
Lindstrom-Foster smiled. ``Yes, it would,'' she said.
For the first time, Lindstrom-Foster had a solid financial case to make to the parent company. A move to Charlottesville would save the company about $446,000 annually in reduced taxes, wages, insurance and rent, according to the company's calculations. The relocation would pay for itself in under four years.
About the same time, California officials made a second overture toward MicroAire. Gov. Pete Wilson sent a letter to MicroAire and other companies, urging them to reconsider plans to leave California.
Wilson cited legislative reforms on workers' compensation and creation of certain business tax credits.
But Lindstrom-Foster disregarded the letter. She said the reforms would have no impact on MicroAire.
Lindstrom-Foster made a formal pitch to Marmon to relocate MicroAire.
On Jan. 4, Lindstrom-Foster, McMunn and Robert Pritzker, chairman of Marmon, boarded the company's corporate jet to Virginia, where they were welcomed by top university officials, the city council, every related department head and even a surprise visit by Patricia Kluge, ex-wife of billionaire John Kluge.
Lindstrom-Foster and McMunn sensed that Pritzker was duly impressed, particularly by the alliance with the university.
Said McMunn: ``It'll be Charlottesville or nothing.''
On Jan. 17, the Northridge Earthquake shook Lindstrom-Foster from her bed and sent her running barefoot through flying glass out of the house.
``I'm outta here,'' Lindstrom-Foster said after the quake. ``I'm not even hanging the pictures back on the wall.''
Though cash incentives were important, the personal attention that MicroAire received in Virginia clearly impressed the company.
``Virginia really went all-out,'' Lindstrom-Foster said. ``It's so nice for somebody to want you so much.''
On March 11, Pritzker gave the green light to the relocation. On March 15, Lindstrom-Foster called a special meeting of all employees in the parking lot. Most already knew what she was going to say.
Relocation of some units would begin during the summer, while the rest of the company would follow next year.
Lindstrom-Foster told the employees that about 40 percent of them would be offered to relocate at the company's expense. The company estimated only 25 percent would actually accept. The remainder would be laid off.
In her office after the announcement, Lindstrom-Foster said she had no regrets.
``It was just too expensive to do business in California,'' she said. MEMO: Staff writer Mylene Mangalindan contributed to this report. by CNB