One of my favorite things about writing this blog are the emails I get from readers. Many many months ago, I got a quasi-anonymous email from someone in Moberly, Missouri. The mail dealt with a plan by the City of Moberly and the “show me” State of Missouri to bring in and heavily subsidize a Chinese company to build, own and run a plant to make a sweetener that would be called Sweet-O. The email set out some facts about the Chinese company and the overall deal and then asked me what I thought.
A series of emails followed between us and by the time they had finished, I was pretty certain that the wool was being pulled over the politicians eyes (imagine that?) and that the odds were that this deal would prove disastrous. I do not remember what all it was that caused me to so clearly conclude this, but as I best recall, I think it tied in to the fact that the Chinese company involved in the deal just seemed so improbable for it. If I recall correctly, another aspect of the deal that troubled me was how little was known about the Chinese company and its owner and how quickly everything was happening. More than anything, it just didn’t seem right to me. I have been “doing deals” for a long ime and I was not getting a sweet scent from this one. I also sensed that my e-mailer was a down to earth common-sense Midwesterner (maybe I watch too many movies?) and his methodical dislike of the deal no doubt influenced me as well.
I wanted to write something on the deal at the time, along with my prediction that these politicians were being taken for a ride, but I was not able to come up with any real facts to back me up and politicians being taken for a ride is hardly news in any event.
I am writing this post today because I got an email today from the same person, with the usual economy of speech. It says, in full, as follows:
Mamtek International defaulted on its first payment to the City of Moberly (Missouri). It seems they left their Moberly offices over a month ago. Apparently Mamtek has named a new interim president who is a “restructuring” attorney known for liquidations, Peter Kravitz.
Construction is nearly complete on the facility.
I again go to the Internet for the back-story. This time there is real news. The Columbia, Missouri, newspaper has a story, entitled, “Sweet-O deal going sour? Moberly on hook if firm defaults,” and in plain talk it makes clear that the news ain’t good:
A company that promised 600 jobs and drew Gov. Jay Nixon to Moberly to announce $17.6 million in state aid is in financial trouble and could potentially stick the city with payments on a $39 million bond deal.
Mamtek International Ltd., a company with Chinese and American ownership, planned to make sucralose, a zero-calorie sweetener at the facility. The $65 million deal, ballyhooed at the start by former Gov. Bob Holden, chairman of the Midwest U.S.-China Association, was put together in 73 days last year and was supposed to include $8 million in private investment.
Moberly issued $39 million in bonds to build the Mamtek factory, buy and install the equipment and take care of other items necessary for the company to begin production. It was supposed to have put 116 people to work — perhaps as early as late last year, according to early reports — and double that employment within 18 months.
Mamtek was supposed to make payments to Moberly so it could in turn pay the bondholders.
“I found out today that they are apparently in default and it is a serious issue for the state of Missouri and the city of Moberly, and I intend to find out how that happened and what can be done about it,” Sen. Kurt Schaefer, R-Columbia, said yesterday afternoon. Schaefer’s district includes Randolph County.
Moberly City Manager Andy Morris would not confirm that the city is stuck with bond payments. But the company has troubles, he said. “The company is going through some financial reorganization, and we are trying to work with them to help them along,” Morris said. “That is really about all I can tell you.”
So why am I writing about this and how is this relevant to you?
I am writing about it because it appears (having only “seen” this from afar I do not know) that the government fell into three classic traps. First, it appears that various governments got overly excited about the possibility of getting Chinese money. It appears it fell prey to the classic “China is rich. We want money. Therefore this is a good deal” syndrome. Second, it appears nobody conducted adequate due diligence. Were the very valid suspicions of my e-mailer ever checked out? I doubt it. I have no idea if my e-mailer ever raised her/his suspicions with City Hall, but having dealt with governments, I can only imagine how they were treated. Can you say groupthink? Third, the deal was rushed. The Columbia paper noted how it all went through in “73 days, far less than the six months or more usually needed to conclude such a deal.” Rushing a deal does not mean it will fail, but it certainly increases the chances.
Seems there are some lessons to be learned.
What do you think?
For some serious and fascinating background on this story [link no longer exists], I urge that everyone check out this article by Janet Morales, of the now defunct (and there is a story behind that too) Moberly Mirror. I do not know what happened in Moberly, but i have spent enough of my life dealing with governments to know that the Moberly Mirror’s description sounds spot-on.