by Arkansas Business Staff on Monday, Dec. 23, 2013 12:00 am
Readers were kept on their toes in 2013: Bank companies blurred lines by merging, Democrats felt the hangover of the 2012 elections while the GOP continued dancing with the stars. Some developers got lucky with new business while others felt the pull of gravity in the courtroom after breaking bad. Here are the top 10 business stories of the year, as reported by Arkansas Business.
1. Banks Consolidate
Arkansas hosted a hearty round of bank consolidations during 2013. The deals stretched from the historically large to the smallest of the small.
Home BancShares Inc. of Conway expanded its footprint in the state in a big way with the $320.1 million cash-stock purchase of Jonesboro’s Liberty Bancshares Inc. The October merger transformed publicly traded Home BancShares into a $7 billion-asset concern.
The transaction also positioned its Centennial Bank to become the second-largest bank based in Arkansas and united long-time friends and bank moguls: Johnny Allison, chairman of Home BancShares, and Wallace Fowler, chairman and CEO of Liberty.
Allison was one of three executives honored as Community Bankers of the Year by American Banker, one of the financial services industry’s top trade publications.
Meanwhile, the largest Arkansas bank, $13.9 billion-asset Arvest Bank of Fayetteville, embedded itself deeper into the Pulaski County market with the $9.6 million cash purchase of National Banking Corp. of North Little Rock in December.
NBC is the parent company of $186.7 million-asset National Bank of Arkansas.
Rogers Bancshares Inc. of Little Rock finally was driven to bankruptcy in July by the horrendous loan losses generated by its Metropolitan National Bank.
The Chapter 11 move facilitated the $53.6 million sale of Metropolitan to Simmons First National Corp. of Pine Bluff in November. The bankruptcy auction of Metropolitan, a historic first for an Arkansas bank, expanded the market penetration in central and northwest Arkansas for Simmons.
The sale effectively closed the books on Rogers Bancshares, the largest TARP recipient in Arkansas at $25 million. It poised the Simmons First logo to become the new corporate crown atop the Metropolitan Tower in downtown Little Rock.
First Federal Bancshares of Arkansas Inc. of Harrison struck a $124 million deal to acquire First National Security Co., the holding company for First National Bank of Hot Springs and Heritage Bank in Jonesboro.
The cash-stock deal, expected to close at year-end, will nearly triple the publicly traded company’s assets to about $1.4 billion.
Ashley Bancstock Co. of Crossett is in the early stages of selling First Community Bank of Crawford County to First Bank of Hampton (Calhoun County). The troubled $66.8 million-asset lender in Van Buren is under a supervisory agreement with the Federal Deposit Insurance Corp.
The smallest bank in Arkansas, $23.9 million-asset Bank of Rison (Cleveland County), found a buyer: Sigma Holdings Inc. of Little Rock, a newly formed venture led by veteran Little Rock banker Troy Duke and Garland County businessman Lewis Ray “L.R.” Gardner. The cash deal closed in September and weighed in at about $3.8 million.
2. Mayflower Oil Spill
On March 29, the name Mayflower became synonymous with “disaster” as a neighborhood in the small community between North Little Rock and Conway was suddenly flooded with more than 200,000 gallons of crude oil.
The oil flowed out of a 22-foot rupture in the Pegasus, an 850-mile-long gas and oil pipeline owned by energy giant ExxonMobil. The 20-inch-diameter pipe runs from Patoka, Ill., about 85 miles east of St. Louis, to Nederland, Texas, near Port Arthur on the Louisiana border, and could carry 95,000 barrels of crude per day. The northern section of the pipe, which runs through Arkansas, was built in 1947 and 1948.
The spill quickly gained national attention, and Exxon was placed under heavy scrutiny as it was slow to offer an explanation for the rupture and the spill site was cordoned off from the public.
What followed were several grueling months of cleanup and investigations, and definitive closure to the story hasn’t been reached even nine months later.
By mid-April, 28,000 barrels of oily water and around 2,000 cubic yards of oiled soil and debris had been recovered from the area around the spill.
By May, damage from the incident was estimated at $16 million.
The spill forced more than 20 families from their homes, and several of the homes were subsequently demolished due to damage from the oil.
Moreover, the oil flowed from the neighborhood into a cove connected to Lake Conway, and the pipeline runs through the Lake Maumelle watershed as well as 17 more of Arkansas’ drinking-water sources.
Though Exxon has said the spill did not affect drinking water, investigations are still being carried out to verify this.
The Arkansas Health Department in June urged Exxon to consider moving the pipeline away from drinking-water sources, but the company has not yet responded to this request.
Reports following the rupture showed there were manufacturing defects in the pipe.
“Based on the metallurgical analysis, the independent laboratory concluded that the root cause of the failure can be attributed to original manufacturing defects — mainly hook cracks near the seam,” Exxon said in July. “Additional contributing factors include atypical pipe properties, such as extremely low impact toughness and elongation properties across the … seam.”
In November, the Pipeline & Hazardous Materials Safety Administration identified nine probable pipeline safety violations and proposed more than $2.6 million in civil penalties against Exxon.
Exxon disagreed with the administration’s findings.
“Regarding next steps, we are still reviewing the [proposal] and have not yet determined our future course of action,” Exxon said in November. “However, it does appear that PHMSA’s analysis is flawed and the agency has made some fundamental errors.”
Following these statements, the company formally challenged PHMSA’s proposed penalties, claiming the findings were inaccurate. Meanwhile, many of the families displaced by the spill have still not returned to their homes.
3. Arkansas’ Private Option
The private option became law in Arkansas in 2013.
When the U.S. Supreme Court upheld most of the Affordable Care Act in 2012, it left it up to the individual states whether to expand Medicaid as called for in the ACA. Arkansas, with a Republican-controlled state Legislature and a Democratic governor, decided on a unique alternate plan, the “private option.”
Under the program, the money designated for the expansion of Medicaid will be used instead to purchase health insurance from private insurers for low-income workers earning up to 138 percent of the poverty line, which comes out to $15,415.
State officials expect as many as 250,000 Arkansans will be eligible to participate in the private option program, and officials with the Department of Human Services predicted accepting the federal funding for the program could save hospitals as much as $670 million in unpaid hospital bills during the next decade.
The private option divided Republicans in the Legislature. Many had opposed the ACA and argued against any state-level participation that was not required by law.
“To my friends who are considering voting for this appropriation, but doing so against the convictions in your heart, I ask you this: Is this vote worth 30 pieces of silver,” Rep. Bruce Westerman, R-Hot Springs, said during the debate, comparing acquiescence to the betrayal of Jesus Christ.
Other Republicans, including House Speaker Davy Carter, R-Cabot, supported the private option, which ultimately passed both chambers with the necessary supermajority in April.
Gov. Mike Beebe signed the bill into law on April 23, even before final approval of the private option variation on Medicaid expansion was received from Kathleen Sebelius, Secretary of Health & Human Services.
Enrollment for the private option opened Oct. 1, although the glitches with the government’s website, HealthCare.gov, hampered efforts. Officials said nearly 80,000 people had applied for private option coverage through the end of November. Coverage will start Jan. 1.
The private option law has annual appropriations that require approval by a 75 percent supermajority each year as a safeguard for the state if federal funding for the Medicaid expansion drops. Opponents have already said they plan to defeat the funding for the private option when the Legislature reconvenes for a fiscal session in February.
4. Hospital Deals
The looming shakeup in the health care industry has encouraged hospital consolidation, but in Arkansas, 2013 was the year of hospital deals that never materialized.
The first breakdown occurred in June. Capella Healthcare of Franklin, Tenn., and Mercy Health of Chesterfield, Mo., ended talks that involved Mercy selling its nonprofit Hot Springs hospital to the for-profit, Capella, which operates National Park Medical Center in the same city.
The health care organizations had been ironing out the details of the transaction since 2012. But the deal faced opposition from the start, prompting one director on Mercy’s national board to resign. Had Mercy and Capella not called off the sale, the Federal Trade Commission said, it was prepared to challenge the proposed transaction, citing the likely anticompetitive harm that would have resulted.
Within months, though, Mercy found another buyer. In October, it announced that it had signed a non-binding letter of intent to sell the Mercy Hot Springs hospital and physician clinic to Catholic Health Initiatives and its affiliate, St. Vincent Health System in Little Rock. That deal is pending, but it didn’t receive as much pushback from the community because both Mercy and St. Vincent are private, Catholic-owned institutions.
The second major deal that collapsed involved St. Vincent. It had been in talks with the University of Arkansas for Medical Sciences of Little Rock since August 2012, in what both sides adamantly described as an affiliation or alliance for the purpose of cost savings. But because St. Vincent is affiliated with the Catholic Church and UAMS is publicly owned, an agreement between the two was fraught with church-state complications.
But it wasn’t all disappointing news for hospitals. Hot Spring County Medical Center had been looking for a partner since 2012 and found one in Baptist Health of Little Rock in 2013.
Baptist will begin operating the 72-bed hospital in Malvern, which will be renamed Baptist Health Medical Center-Hot Spring County, on Jan. 1.
While there isn’t a wholesale move of smaller hospitals in Arkansas looking to merge or affiliate with larger hospitals in the state, that prospect might be on the horizon because of dramatic Medicare cuts found in the Affordable Care Act. During the next 10 years, Arkansas hospitals are projected to lose $2 billion in Medicare reimbursements.
In other hospital news, NEA Baptist Health System announced a ribbon-cutting ceremony in December for its new medical complex.
The 50-acre campus on the north side of Jonesboro features a 550,000-SF hospital.
NEA said it spent $400 million to build and furnish the new facilities, which will house 500 health care jobs. NEA will start seeing patients on the campus in January.
5. Big River Steel
2013 began auspiciously for manufacturing in Arkansas, with the announcement that Big River Steel LLC planned to build a $1.1 billion steel mill in Osceola with a full-time payroll of 525 at average yearly pay of $75,000. That’s in addition to the 2,000 temporary construction jobs to build the plant.
Big River Steel CEO John Correnti of Blytheville termed the 1,140-acre site “steel mill heaven,” and said that average salaries could soon approach $100,000 after the plant opens.
Gov. Mike Beebe, calling the project the “largest economic development deal in the state’s history,” and Correnti made the announcement on Jan. 29 at the state Capitol. That location was deliberately chosen.
Beebe and Correnti said the project depended on the state Legislature approving a multimillion-dollar package of incentives, including a $125 million bond issue under Amendment 82 of the Arkansas Constitution, the first time the “superproject” legislation was to be activated. The amendment, approved in 2004, authorizes the Legislature to approve the issuance of general obligation bonds to pay for infrastructure to attract big economic development projects — like steel mills.
That $125 million was to fund startup costs and included a $50 million loan to the company, $50 million for site preparation, $20 million to stabilize the surface and $5 million for bond insurance.
Legislators in April approved the bond package, despite objections from Nucor Corp., which runs two steel mills near Blytheville. Nucor said the Big River mill threatened Arkansas’ existing steel mill industry, but lawmakers and state officials remained unsympathetic.
Later in the year, however, manufacturing in Arkansas suffered a blow with the June 28 announcement by Nordex USA that it was stopping production at its wind turbine plant in Jonesboro. The plant, which had expected to eventually employ 750, cut 40 of its 50 workers. The company said its decision was based on “the wind industry’s global overcapacity and the continued uncertainty and instability of the U.S. market.”
More bad news came on July 28 when Hewlett-Packard said that it was laying off 500 people at its services center in Conway. HP said the move was part of a restructuring process announced in May 2012. But then on Dec. 18, HP announced it was hiring 200 software engineers and programmers through 2014, helping soften the blow of the earlier layoffs.
And in October, Big River Steel, which had planned to break ground on its mill before the end of 2013, was stymied by yet another Nucor effort to stop the plant. Nucor challenged the air permit issued Sept. 18 to Big River by the Arkansas Department of Environmental Quality, saying it was improperly processed. That led Big River to delay its steel mill groundbreaking by several months. A hearing on the permit objections was set for February.
6. Public Companies
In 2013, as the Dow Jones Industrial Average finally revisited its pre-recession height of 14,000 and then blew past it to briefly top 16,000, publicly traded companies in Arkansas were active, productive and very, very good to investors.
Two Arkansas companies, Wind-stream Holdings and J.B. Hunt Transport Services, debuted in the Fortune 500 based on 2012 revenue, joining four regulars: Wal-Mart Stores, Tyson Foods, Murphy Oil and Dillard’s.
Then Murphy Oil got smaller by spinning off its retail division as a separate publicly traded company, Murphy USA.
But Murphy USA wasn’t the only addition to the state’s roster of publicly traded companies. Inuvo Inc., which had struggled to turn a profit in the high-rent district of New York City, relocated in February to Conway — where major shareholder Charles Morgan once ran Acxiom — and promptly went from red to black.
Speaking of Acxiom, the Little Rock data miner was one of five publicly traded companies in the state that enjoyed triple-digit returns on its stock this year. After languishing below $20 since the fall of 2007, Acxiom’s stock price began a run-up in March and topped $36 last week, double its December 2012 price.
Other triple-digit winners:
• Home Bancshares, which split its stock and then acquired Liberty Bancshares of Jonesboro on the way to an annual return of about 125 percent;
• P.A.M. Transportation Services, the Tontitown trucker, which started 2013 under $10 a share and ended it above $20, thanks in part to a year-end offer to buy back up to 600,000 shares;
• Arkansas Best Corp. of Fort Smith, whose stock nearly tripled thanks to a favorable, hard-fought contract with the Teamsters union; and
• The 2013 champ, USA Truck of Van Buren, where a new CEO and an unwelcome takeover attempt by Knight Transportation of Phoenix combined to run up the stock price by some 330 percent.
USA Truck wasn't alone in picking new leadership. With the spinoff of Murphy USA (where Andrew Clyde is CEO), Stephen Cosse retired (again) from Murphy Oil, and Roger Jenkins became its CEO. Tom Morrison succeeded Joe Brooks at the helm of Advanced Environmental Recycling Technologies, and Chris Wewers took over the top spot at First Federal Bancshares of Arkansas from Dabbs Cavin.
George Makris Jr. is set to succeed J. Thomas May as CEO of Simmons First National Corp. on Jan. 1, and Wal-Mart announced that Doug McMillon will become CEO of the world’s largest company when its new fiscal year starts Feb. 1.
7. Allens Inc.’s Bankruptcy
On Oct. 28, Allens Inc. of Siloam Springs filed for Chapter 11 bankruptcy with estimated debts of $279.9 million, making it one of the largest bankruptcy cases in the state’s history.
While in reorganization, the 87-year-old family-owned vegetable processor and food-service provider and Seneca Foods Corp. of Marion, N.Y., entered into an asset purchase agreement for Seneca to acquire “substantially all the operating assets” of Allens in a deal worth $148 million.
The agreement calls for Seneca to serve as the “stalking-horse” bidder in an auction process, meaning Seneca has the opportunity to match any other bids Allens might receive. Bankruptcy court still would have to approve Allens’ sale, which is expected to happen in January.
Founded as Allen Canning Co., Allens has about 1,175 employees, with 448 in Arkansas, and has been among Arkansas’ largest private companies ranked by revenue. In addition to the Allens label, the company’s brands include Popeye Spinach, Princella, Freshlike and Royal Prince.
If Allens is sold, unsecured creditors most likely wouldn’t be paid in full. They are owed an estimated $101.9 million, according to an Allens bankruptcy filing by Jonathan Hickman, who is managing director of Alvarez & Marshal Holdings LLC and Allens’ chief restructuring officer.
In its initial bankruptcy filing, Allens estimated its assets at between $100 million and $500 million.
Allens’ financial trouble could be traced to its decision to jump into the frozen-vegetable market in 2006 by purchasing private-label brands from Birds Eye Foods Inc.
The acquisition helped boost Allens’ revenue, which was self-reported to Arkansas Business. Revenue peaked at $746 million in the fiscal year that ended in February 2010, when it had 2,100 employees.
But as Allens struggled to integrate the frozen division into its business, overall sales of canned items in the United Sates were dropping.
In 2011, Allens faced “significant operating challenges” tied to the production of canned vegetables, Allens’ Hickman said in his report.
Allens tried to slash expenses by closing its Fort Worth plant in 2011, which eliminated 70 jobs. Allens then sold most of its frozen foods division in 2012.
Limping through this year, Allens attempted to improve its working capital and was in talks with a “third party to secure an equity investment,” Hickman said in a report filed with the bankruptcy case.
Hickman said the management team worked hard to improve Allens’ books, but it continued to struggle. He said the company’s only option was to file for Chapter 11 bankruptcy and hope to find a buyer or investor or to restructure its debt.
8. Loan Fraud Fallout
2013 was the year when the slow wheels of justice finally caught up with some of the excesses before and during the Great Recession.
None of the stories was bigger than that of northwest Arkansas developer Brandon Barber and his circle of associates. None was more tragic than the downfall of Layton “Scooter” Stuart, owner of Little Rock’s One Bank & Trust.
Barber, now 37 and incarcerated in the Washington County jail, was the common denominator in two federal indictments issued by grand juries in March. It had taken two and a half years for charges to be filed after a bankruptcy judge essentially accused Barber of bankruptcy fraud, but then it took prosecutors only eight months to secure convictions against five of the men and for a jury to acquit the sixth.
Pleading guilty were Barber, Jeff Whorton, Brandon Rains and James Van Doren. A Fort Smith jury in November found K. Vaughn Knight, Barber’s former attorney, guilty of several charges. Knight has asked for a new trial.
David Fisher, a Rogers attorney accused of conspiring with Barber, Rains and Whorton, was acquitted in October.
None of the convicted felons has been sentenced. One more co-conspirator, former northwest Arkansas developer Gary Combs, died in 2012.
In Little Rock, 2013 brought more details of alleged self-dealing at One Bank that allowed Scooter Stuart to
maintain an opulent lifestyle. Federal agents raided his west Little Rock home in February, and a month later Stuart was dead after at least two recent episodes related to a heart condition.
In June, Uncle Sam seized assets that included his family’s luxury cars and a $17.6 million life insurance payout that was to go to a trust set up to benefit his wife and two grown children.
Alleged loan fraud orchestrated by Stuart tainted Little Rock homes owned by his son and daughter. Money from the sale of her house was frozen in July, and his Pleasant Valley manor was forfeited to One Bank in August.
Stuart’s debt-laden mansion in west Little Rock was set to be given to One Bank in lieu of foreclosure by year’s end.
Federal charges were filed against Matthew Sweet, One Bank’s former controller, for allegedly helping himself to some $76,000 of the bank’s money, and against Alberto Solaroli, a Canadian citizen living in Florida, who allegedly misrepresented his net worth when he took out a $1.5 million line of credit from One Bank.
Little Rock developer Steve Clary was sentenced to 30 months in federal prison after pleading guilty to misusing almost $1.6 million of a $4.5 million loan that he received from Bank of America Leasing Capital in 2008.
• Thirty-five felony counts related to alleged bank fraud dating to 2009-10 by Steve Standridge, who had owned one of the state's largest insurance agencies, and
• An 11-count indictment against John Stacks, CEO of HomeBank of Arkansas and owner of Mountain Pure LLC, for what federal prosecutors say was a fraudulent loan from the U.S. Small Business Administration in 2009.
9. Treasurer Shoffner Charged
The hounds of justice were on the scent of political corruption when Arkansas Business broke the news on Jan. 7 that state Treasurer Martha Shoffner was the subject of a criminal probe.
In the weeks that followed, private allegations against Shoffner exploded onto the public scene and chased the constitutional caretaker of the state’s $3.3 billion investment portfolio from office.
Shoffner was arrested at her Newport home on May 18 when the FBI alleged she accepted a $6,000 cash bribe. The feds reported that the damning exchange that day, involving a bond trader whose identity was protected, was captured on tape. Sources identified the trader as Steele Stephens of St. Bernard Financial Services Inc. of Russellville. The bond trader in the sting received immunity from prosecution.
At the heart of the controversy is the relationship between Shoffner, Stephens and his father, Steve, who also worked at St. Bernard Financial and earlier at Apple Tree Investments Inc. of Little Rock.
The tiny firms handled nearly twice as much bond business for the state Treasurer’s Office as the closest competitor while employing Steele and Steve Stephens, who grew up in Newport and knew Shoffner.
The Division of Legislative Audit analyzed bond trades conducted for the state treasurer during a 45-month period. Shoffner’s office bought and sold bonds totaling $1.69 billion through the father-son team between July 1, 2008, and March 31, 2012.
Shoffner initially said she wouldn’t leave office despite the charges and her arrest. However, she changed her mind and resigned May 21 amid public outcry and bipartisan consternation.
On May 29, Gov. Mike Beebe appointed Charles Robinson, a retired Legislative Audit Division chief, to finish out Shoffner’s second term, which ends in January 2015.
On May 31, Shoffner disputed the alleged facts of a plea agreement in open court, a move that caught even her veteran defense attorney, Chuck Banks, by surprise.
Her position not to admit soliciting the bribes effectively derailed a plea bargain that probably would have resulted in a prison sentence of no more than 18 months
A grand jury indictment filed June 5 leveled six counts of extortion, one count of attempted extortion and seven counts of receipt of a bribe.
Shoffner pleaded not guilty to the charges at her June 27 arraignment. Her trial date is set for March 3 in Little Rock’s U.S. District Court before Judge Leon Holmes.
10. Massive Medicare Fraud
Dr. Stacey M. Johnson might have orchestrated the largest Medicare fraud in Arkansas’ history by allegedly overbilling the federal program by $14.7 million, according to a criminal investigator’s affidavit that was made public in 2013. Johnson likely would have been indicted, in connection with ordering tests that weren’t medically necessary, had he not died in March at the age of 63, according to a civil forfeiture lawsuit filed in September by the U.S. Attorney’s Office for the Western District of Arkansas.
The overbilling allegedly occurred between Jan. 1, 2004, and June 30, 2006, and Jan. 1, 2007, through June 26, 2009.
The story highlighted the fact that providers are behind some of the largest Medicare fraud cases in the country. And if red flags had been noticed earlier, Johnson’s practice might have been shut down before 2009, when the Arkansas State Medical Board finally yanked Johnson’s medical license, finding he was a danger to the public health, safety and welfare.
Concerns about Johnson’s treatment plans dated back to the 1980s when Medicare had “counseled” Johnson for ordering excessive tests on patients.
And over the years, patients and insurance companies had complained to the medical board about Johnson’s excessive testing.
Even Johnson’ ex-wife, Cynthia Johnson, who worked with him at his Mountain Home clinic, had complained about his running so many tests on patients.
“And he would look at me and say, ‘Are you the doctor?’” Cynthia Johnson told Arkansas Business.
Still, she defended her former husband and maintained he didn’t commit Medicare fraud. She said he ran the tests because he thought they helped the patients.
A company hired by the Centers for Medicare & Medicaid Services to root our fraud found that between 2004 and June 30, 2006, Johnson performed 115 unnecessary heart catheterizations.
It’s unclear when federal investigators started looking at Johnson. In September 2013, federal prosecutors filed a forfeiture lawsuit to seize Johnson’s ex-wife’s Mountain Home mansion, which prosecutors said was paid for with proceeds from the Medicare fraud. Cynthia Johnson paid $600,000 to settle the lawsuit and keep the home.
Conner Eldridge, U.S. attorney for the Western District of Arkansas, told Arkansas Business in October that recovering more assets is “an ongoing effort.”
He wouldn’t say whether anyone would be charged, citing the continuing investigation. As of Dec. 13, no charges had been brought in connection with Dr. Johnson’s case, and none of his assets had been seized by the federal government.
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