Case Study 11: Sale of The Oxnard Facility

Background

The historic mission of the DOE High Energy Rate Forging (HERF) facility, located in Oxnard, California, was the production of forgings for weapon parts. The Department initially contracted with the facility to secure this service. The HERF technology is unique to the Oxnard facility and was never adopted by commercial industry. In 1984, when it was clear that the company was going out of business, DOE purchased the facility to support its needs. In 1994, DOE decided to close the facility upon completion of its defense-related mission in 1996. The site is administered by the DOE Rocky Flats Field Office (RFFO).

The Effort

In the fall of 1994, RFFO and the Greater Oxnard Economic Development Corporation (GOEDC) began exploring economic development opportunities associated with the closing of the Oxnard facility. GOEDC is a nonprofit adjunct of the City of Oxnard, California. In May 1995, DOE approved a plan to sell the Oxnard facility to GOEDC, with GOEDC then reselling the facility to a private end-user. DOE also provided a Community Reuse Organization grant to GOEDC.

Early on in this process, DOE commissioned a market analysis to better understand the commercialization potential of the technology. This analysis demonstrated that potential specialty niches for HERF products existed in the aerospace and medical industries but did not determine whether HERF could be cost-effective. Further exacerbating the situation was the fact that the forging industry in the United States is in decline, with little capital reinvestment or expansion occurring. The forging industry has shrunk approximately 10 percent per decade since World War II.

Current Status

GOEDC first identified interest by the private sector in purchasing the facility and then moved ahead with preparations for the sale. To learn the level of interest, GOEDC published a request for interest in the Commerce Business Daily (CBD). They received more than 30 responses, including responses from a number of “mainstream” forging companies. Based on this level of response, GOEDC published a request for proposals in the CBD to solicit offers to purchase the Oxnard facility. The selection criteria included the following: price, terms, and conditions; business plans; ability to utilize existing employees and technology; and environmental compliance. Although four proposals were received by the due date, two were judged nonresponsive.

GOEDC requested “best and final offers” from the two responsive proposers and informed both proposers that their offers were too low. Based on recommendations from GOEDC’s Source Selection Board, GOEDC began exclusive negotiations with one of the companies. After a series of negotiations, in January 1996, RFFO and GOEDC reached a tentative sales agreement reflecting a better return to the Government. However, GOEDC’s purchaser subsequently informed GOEDC and RFFO that they were not able to obtain financing and would not be able to purchase the facility.

After a round of proposals and counterproposals between RFFO and GOEDC failed to reach a workable deal, RFFO proceeded to dispose of the property through more conventional (that is, non-economic development) methods. The personal property was sold on June 25, 1996, for $1.8 million, of which DOE netted nearly $1.4 million. The $1.8 million sale amount was well above the appraised value. RFFO is proceeding with the General Counsel’s office and GSA on the sale of the real property.

Lessons Learned

RFFO tried to sell Oxnard as an integrated business unit versus simply liquidating its constituent parts. Considering the number of responses to the request for interest (30), it appears that the availability of the facility was well known, but the limited response to the request for proposals (4), revealed that the facility was not very attractive to industry, especially to the forging industry, from which no company submitted a proposal.

The experience with Oxnard highlights the potential difficulties encountered in attempting to sell a surplus business in an integrated ongoing fashion rather than simply liquidating its surplus assets. Generally, an integrated facility (real property, equipment, supplies, and so forth) is assumed to be of higher value than the total of its constituent parts. This will not always be the case, however, as demonstrated by this case study; sometimes the market for a facility is just not there.

It is interesting to note that the company that was to have bought the facility from GOEDC intended to purchase the Oxnard facility as part of a larger complex merger and acquisition involving three separate businesses. Whenfinancing for the larger deal fell through, the Oxnard sale fell victim as well. This aspect of the experience points out the need for DOE to have a betterappreciation for what is behind a purchase proposal.