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Kyle Potter, Published June 01 2013

North Dakota’s $1.1M bet on Alien Technology still pending

FARGO – Four years after Alien Technology closed its Fargo plant, it remains unclear whether the $1.1 million bet state officials in North Dakota placed on the California-based maker of “smart tags” will ever pay off or even be paid back.

It’s the only equity position the state’s gap financing fund holds in a company that doesn’t do business in North Dakota – a deal a national economic development expert said is unusual because of its risks.

The North Dakota Development Fund and the Bank of North Dakota together purchased more than $1 million of stock in Alien Technology as part of a $36 million incentive package of tax breaks, loans and investments that helped woo the high-tech company to expand in Fargo in 2003.

Both public agencies still have the equity investments on their balance sheets and no timetable for getting the money back, officials said last week.

Alien Technology has paid back all of the roughly $16 million it received in loans, a spokesman for the company said last week, including about $2.9 million from the Bank of North Dakota and another $134,000 from the Greater Fargo Moorhead Economic Development Corp.

But it’s harder to recoup an equity investment, said Dean Reese, CEO of the state’s Development Fund.

With a loan, a lender can go after collateral or squeeze a company into making payments. Reese said getting Alien to buy back its stock depends primarily on the company’s success.

“At this point, we don’t have the ability to call and say, ‘Cut us a check,’ ” he said.

And if they do, they may have to accept a loss, he said.

Experts say it’s rare for public economic development corporations to buy stock in a company as part of an incentive package.

“They’re not big tools in the typical toolkit of most states,” said Greg LeRoy, executive director of Good Jobs First, a national research organization for economic development.

“States get burned and pull back from them,” LeRoy said, because an equity investment is “a level of commitment into a company that’s just so much higher” than a loan, tax break or training grant.

In retrospect, Reese said the Development Fund should have offered the company a loan. Lending constitutes about 70 percent of his business, he said.

But Alien Technology was a promising company that vowed to deliver good-paying jobs, and an equity investment was a necessary piece to land those jobs in Fargo, he said.

Reese said the Alien stock is the only equity investment the Development Fund has in a company outside of North Dakota.

Though it left Fargo in mid-2009, the Alien is still producing its “smart tag” microchips in Morgan Hill, Calif. So long as the company is in business, Reese said he’ll wait for the possibility of getting the Development Fund’s $593,000 investment back – or at least part of it. The Bank of North Dakota still has its $500,000 stake in the company, a bank official confirmed.

Through a spokesman, Alien Technology said it could not comment on equity investments, and declined to comment further for this story.

There were grand expectations for Alien Technology a decade ago when it signed an agreement to build a production site in the North Dakota State University Research and Technology Park.

Alien predicted it would create 1,100 jobs and a

$55 million payroll by the end of the decade. It produces radio-frequency identification tags, microchips the size of pepper flakes used to track products.

“At the time when they did that, that was cutting edge based on what this company could do,” Reese said. “Based on the private public collaboration … it was an exciting opportunity for the state of North Dakota and for Fargo.”

But employment slumped at its Fargo plant, from 44 employees in 2006 to 22 in 2008. The company indefinitely postponed an initial public offering of stock set for July 2006.

After weeks of speculation and talk of moving its headquarters to North Dakota, Alien announced in May 2009 that it would close its Fargo plant.

By June of that year, its 50,000-square-foot facility was empty.

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Readers can reach Forum reporter Kyle Potter at (701) 241-5502