Packard Bell Will Leave Valley for Sacramento
Signaling the loss of yet another major employer from the San Fernando Valley, the Sacramento City Council has wooed Packard Bell Electronics to an old Army base here with a generous $26-million loan package.
At a late-running City Council meeting Tuesday night, the firm for the first time confirmed publicly that it will indeed move from Westlake Village to the Sacramento Army Depot, barring any last-minute complications. Shortly afterward, council members voted unanimously to offer a lease.
The depot was scheduled to be shuttered in 1997, but Army officials said they are prepared to turn it over early.
“We are looking to execute the lease (on the Sacramento base) no later than Nov. 1,” said Jeff Scheinrock, Packard Bell vice chairman for finance and strategic planning. “So the answer is yes, we’re committing” to the move.
The move is one more in a series of blows to the Valley’s job base, following closely on the heels of last month’s announcement that Lockheed, which has been reducing its Burbank work force for years, will lay off an unspecified number of Valley employees because of its impending merger with Martin-Marietta.
The aerospace giant Lockheed and Packard Bell, the nation’s third-largest personal computer manufacturer, have been foundation stones of the Valley’s industrial economy. Until the Jan. 17 earthquake forced Packard Bell to temporarily relocate to facilities in Westlake Village, the company was headquartered in Chatsworth.
Scheinrock said Packard Bell will begin its search for new employees in Sacramento immediately. The firm is not likely to transfer many jobs from the Valley because it gets a $5-million tax break for hiring disadvantaged workers from an enterprise zone established in Sacramento.
In making the move, Packard Bell is expected to reduce salaries that it pays to employees. While a typical Westlake Village worker makes $15 an hour, or $31,000 annually, the company is expected to pay around $9 an hour, or about $19,000 annually, in Sacramento.
Packard Bell spokeswoman Liz O’Donnell said details of the company’s phaseout in Westlake Village have yet to be sorted out. A lease that runs until the end of 1995 virtually guarantees, however, that some operations will continue there until then, she said.
In shopping around for a new U.S. headquarters where it will double its work force to 3,000 and occupy 1.8 million square feet of space, Packard Bell quickly ruled out any candidates in Southern California, Scheinrock said.
The company had many reasons, and the Northridge earthquake was one, Scheinrock said. He said, however, that the company’s losses were not severe and Packard Bell’s choice boiled down to which locale offered the best deal in a competition for its jobs.
The company also has talked with recruiters from Oregon and Utah. The cities of Palmdale, Long Beach and Thousand Oaks also tried to attract the firm.
Sacramento officials extended the offer of a lease to Packard Bell after some hand-wringing over the merits of rolling out the red carpet for a key player in such an unpredictable industry.
“In such a volatile industry, it is impossible to predict the viability of any company beyond three to five years--particularly a company that offers a single high-cost product for consumers that is not a basic necessity,” a city staff analysis said.
“A lease of this size . . . must be characterized as a high risk to the city,” the report stated, noting, however, that “staff has reviewed records of the company’s performance and believes that it will be strong for at least three to five years.”
Councilman Jimmy Yee expressed concern over the financial health of Packard Bell, a rapidly expanding firm that has more than doubled its sales volume in the past year.
Sales have increased from $1.1 billion in 1993 to a projected $2.5 billion this year, making Packard Bell the fastest-growing personal computer manufacturer in the world.
“We are talking about a company that’s highly leveraged,” Yee said. “We’re not talking about Compac or Apple.”
Because Packard Bell is a privately held company, its financial data was not made available to the council members voting on the deal. For guidance, they had to rely on the recommendations from city staff to approve the deal.
Sacramento City Treasurer Tom Friery, while noting he was sworn to secrecy on much of the information he reviewed, confirmed that Packard Bell taps a $225-million line of credit about five times a year, borrowing more than $1 billion annually. Still, council members said they were confident the deal--however risky--will work to the community’s benefit.
“We could lose some of our money,” Mayor Joe Serna Jr. said. “On the other hand . . . there is no such thing as risk-free capitalism. The council should decide that the risk on this project is, on balance, acceptable.”
Opponents, however, warned the City Council that its loan terms were too favorable, giving Packard Bell a great deal at the expense of the city’s taxpayers.
The money would be better spent helping the homeless, many said. “I think they are giving them way too much,” said Shelby Fermon, a neighborhood activist.
Under terms of the deal, the city will obtain a loan from Bank of America for $17 million and hand over the money to Packard Bell to renovate 210 acres of the Army depot as it sees fit.
On top of that, the city will seek bond money to provide another $6 million to $9 million in loans to help Packard Bell cover its moving costs.
In return, the company must promise to remain there for 20 years, repaying the moving expenses in five years and the site-improvement loan in 12 years. Packard Bell will pay only $1 a year in rent and, after 10 years, can purchase the 210 acres for $6.8 million.
As a financial incentive for Packard Bell to bring along affiliated companies or suppliers, the city agreed to provide up to 512,000 additional square feet of space to the firm. Packard Bell would be able to sublease this space to the suppliers and use the income to repay its debt to the city.
Before the lease arrangements can be completed, city officials said, a number of hurdles have to be cleared quickly so Packard Bell can begin work on the site in November.
First, the Army must formally sign off on turning the land over to the city, as the Defense Department has promised to do. Then, state officials must confirm they are willing to locate a prison and a university manufacturing technology institute--both previously planned for the site--elsewhere. Then, a Vietnam veterans group must agree to withdraw its request for the land.
Saying they hoped to be in the vanguard of the post-Cold War movement to convert former military bases to new uses, Sacramento officials said they were counting on the Packard Bell move to create 4,500 to 5,000 new jobs in the area through a “ripple effect.”
