Arrow Electronics' HQ transfer, a complicated courtship

When Colorado officials announced Arrow Electronics Inc., Long Island's largest public company, was moving its headquarters there, the state threw a party for 1,100 people, complete with barbecue and elephants.

At the Denver Zoo event two years ago, Gov. John Hickenlooper welcomed Arrow, a distributor of electronic components and computer products. Two Asian elephants, one of them holding the company's flag, formed a backdrop as the governor and the Arrow CEO heaped praise on each other and Colorado.

"I couldn't think of a better place for us to be," Michael J. Long, Arrow's chief executive and a Colorado resident, said at the bash on Oct. 11, 2011. "Colorado," he said, champagne glass in hand, "is going to be the perfect place for us to start and create future innovation."

By contrast, on Long Island that night, there was alarm in business and political circles. A subsequent effort to persuade Arrow to reverse its decision failed.

With the company's office in Melville no longer deemed to be its headquarters, only three Fortune 500 companies are based here. Arrow's 2012 sales of $20.4 billion ranked it No. 141 on the magazine's latest list of the largest U.S. public companies.

To report the behind-the-scenes story of Arrow's move, Newsday reviewed internal memos, reports and hundreds of emails obtained under the Freedom of Information Law, and interviewed people in Colorado and New York State.

The documents, nearly 1,200 pages in all, show the highest levels of Colorado government were deeply involved in the nine-month courtship of Arrow.

Complicated courtship

The process wasn't smooth; emails reveal mistakes by Colorado officials that infuriated Arrow, especially when the state's congressional delegation told the company's board of directors about the headquarters move before they had been told by the CEO.

But records show the outcome was never seriously in doubt. Long, Arrow's chief executive since 2009, lives in Colorado, where he owns two homes and serves on the Denver Zoo board. Arrow also never sought competing tax breaks or other aid from New York officials, who were in the dark about the company's plans.

On Long Island, development experts said the loss of another corporate office was more than just a blow to regional pride. It's emblematic of the difficulty in keeping public companies here because of high costs and takeovers by larger businesses that are located elsewhere, the experts said.

The number of public companies traded on major exchanges that call Nassau and Suffolk counties home has fallen from more than 80 a decade ago to 53 last year.

Arrow's decision hasn't yet resulted in big job cuts at its former headquarters in Melville or its four other sites here.

CEO Long, in a statement this month responding to questions, said that while Arrow might rearrange its local office space, there are no plans to lay off the 530 employees: "As a practical business matter, little changed two years ago for Arrow other than our corporate mailing address."

Still, the company's Long Island payroll has shrunk by 20 jobs since 2011 to 530, while the Denver payroll swelled to 1,400 jobs, an increase of 400. The company has pledged to add another 850 positions in Colorado by 2017.

From HQ to outpost

The development experts predict Arrow will fade from the Island, just as Grumman Corp. did after being purchased by Northrop Corp. in 1994.

"When you go from the top location to the outpost it becomes a significant problem," said tax services firm Ryan LLC's Tom Stringer, who helps businesses decide where to expand.

The Rocky Mountain State's pursuit of Arrow began in 2010 when Hickenlooper, during his campaign for governor, heard from a friend at Arrow that an expansion of its offices in suburban Denver was in the offing. The friend, after Hickenlooper's inauguration in early 2011, introduced him to the Arrow CEO.

"He and I hit it off," said Hickenlooper, who was a geologist and brewpub owner before entering politics. "He wanted to see what the potential was" for Arrow in Colorado, the Democratic governor told Newsday this month. "We made a commitment that we would move heaven and earth to make them wholly successful."

Weeks later, Hickenlooper introduced the Arrow chief to the CEOs of Western Union, DaVita and Cirque Resources LP, three large companies headquartered in Colorado. They got to know each other with their wives during a three-hour dinner at the governor's private home in May 2011.

As an icebreaker, each person was asked to talk about the worst moment of their lives. "We literally were all on the verge of tears," the governor said. "It brought the whole room much closer together."

To engineer the move, which remained a secret, Arrow appointed Rich Kylberg, its corporate communications vice president and the Hickenlooper friend, as lead negotiator. The state named David Thomson, a division director in the Office of Economic Development and International Trade, as its point man.

Details that needed to be ironed out included the amount and type of aid Colorado would give Arrow, whether the state would try to attract Arrow suppliers, and whether Denver International Airport would add direct flights to Asia.

Early in the process, however, Colorado's Thomson angered Arrow by divulging its plans to a company that does business with Avnet Inc., a key competitor of Arrow.

Kylberg wrote in a May 18, 2011, email, "Please can you help me out by not discussing the potential relationship between Arrow and Colorado outside the confines of the [confidentiality] agreement . . . This has the potential to cause Arrow damage."

Some experts said they were surprised the leak didn't kill the deal. "I've heard of deals going south because someone opened their mouth," said Dennis Shea, publisher of the Westbury-based trade magazine Area Development.

In August 2011, another serious misstep occurred when Colorado's U.S. Senate and House members sent their premature letter to the Arrow board. Kylberg, the company's negotiator, fired off an Aug. 10 email, saying, "In a different situation, this is the sort of snafu that could undermine a lot of the rest of the state's great efforts to attract companies."

Meanwhile, an independent study of the cost to Arrow of shifting its corporate office to Englewood, Colo., prepared for Colorado by accounting firm Deloitte, came to a distressing conclusion: The price tag would be around $20 million due to severance and moving expenses for Melville employees, even though none were contemplated.

The study led Arrow's finance department in Melville to shelve the application for $11.4 million in Colorado tax credits.

Kylberg was furious, writing in an Aug. 12 email, "What seemed like an almost foregone conclusion has now become a question."

Asked about the gaffe recently, Thomson, the state negotiator, accused Arrow workers on Long Island of misleading the study's authors "because they didn't want to move."

Kylberg disagreed, saying in an interview, "I think the wires were crossed between people at Arrow."

Outcome not in doubt

Despite these mishaps, Arrow's plan continued to move forward. Executives met with state officials to discuss ways of attracting more electronics businesses to Colorado.

Several experts said CEO preference is instrumental in where headquarters are located, and they surmised that was true for Arrow as well: "It is not surprising they moved their headquarters to Colorado, because that's where the CEO wants to live," said Shea, of the development magazine.

Arrow officials said the chief executive's residency wasn't a key factor. Arrow wanted to boost its profile, and that's easier in Colorado, which has 10 Fortune 500 companies compared with New York's 52. Also, more than 50 percent of the company's sales stem from operations based in Colorado.

In late September 2011, Arrow finally applied for the Colorado tax credits. A state commission approved up to $11.4 million in aid on Oct. 6, in a hastily arranged telephone call lasting 10 to 15 minutes, two state officials said.

On Long Island, after learning of Arrow's Oct. 11 announcement, state and local officials quickly offered incentives to keep the corporate office here, or at least not lose any other operations.

Andrea Lohneiss, regional director for Empire State Development, said New York State, together with local agencies, would have matched Colorado's aid package. But she said, "The company's Long Island leadership was very blunt in advising that New York State incentives were not sought nor was there any interest in seeking them."

Arrow executives, she said, "didn't want to complicate their process" with a competition between the states.

ARROW ELECTRONICS INC.

What it does: distributor of electronic components and computer products

Sales (2012): $20.4 billion

Profit (2012): $506.3 million

Headquarters: Englewood, Colo.

Facilities: More than 470 facilities in 55 countries, including Nu Horizons subsidiary on Long Island

Employees: 16,500, including 530 on LI

Leadership: CEO Michael J. Long

Stock ticker symbol (exchange): ARW (New York Stock Exchange)

Fortune 500 Ranking (2013): 141

History: Started selling used radios and parts in lower Manhattan to consumers in 1935; began supplying electronic parts to industry and opened sales office in Mineola in 1950s; moved headquarters to Farmingdale in 1963; moved headquarters to a Denver suburb in 2011.

Sources: Arrow Electronics, Newsday research

KEY PLAYERS IN THE HQ MOVE

Michael J. Long, Arrow CEO

Rich Kylberg, Arrow’s corporate communications vice president and pointman on the project

John Hickenlooper, Colorado governor

Ken Lund, executive director of Colorado’s Office of Economic Development and International Trade

David Thomson, director of office’s global business development division and Colorado’s pointman on the project

Sources: Arrow Electronics, Colorado Office of Economic Development and International Trade, Newsday interviews