Week of March 24, 2003
from Site Selection's exclusive New Plant database
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Philip Morris Relocating NYC Headquarters to Native Virginia Areaby JACK LYNE, Site Selection Executive Editor of Interactive Publishing HENRICO COUNTY, Va. Philip Morris(www.philipmorris.com) has its headquarters headed from New York to the Virginia area where it was initially incorporated in 1919. The tobacco titan has announced that it will shut down its 682-employee Park Ave. headquarters next year and move to Henrico County, Va. (www.co.henrico.va.us), just outside the city of Richmond.
The change of corporate venue won't come cheap. Total relocation costs will be approximately $120 million, Philip Morris officials estimated, including compensation to those headquarters employees who chose not to relocate.
Cost savings, though, are the main driver powering the move, company officials said. Relocating in Virginia will cut costs by $60 million a year, they explained.
"This move will help to streamline our business operations, increase efficiencies and deliver significant cost savings over the long run, benefiting all of our employees and maximizing the return to our shareholder, Altria Group, Inc.," Philip Morris USA Chairman and Chief Executive Officer Michael Szymanczyk said at the project announcement in Henrico County.
Part of the savings will come from the cost-efficiencies in basing the headquarters in an area in which Philip Morris already has its largest employee concentration. The company currently employs some 6,800 Richmond-area workers in local-area manufacturing, sales and support positions.
Szymanczyk described the relocation as "a difficult decision to make because of our company's long corporate history in New York City and the impact it will have on our employees."
The move, though, had been on the company's decision-making table for some time. The company had "regularly reviewed the financial implications of maintaining its headquarters in New York City . . . over the last five years," he said.
The cost-cutting repositioning of the company base comes as cigarette makers are engaged in a fierce price-slashing scuffle. Deep-discount manufacturers are wresting market share from premium-priced companies like Philip Morris, whose Marlboro brand is the world's leading seller.
New HQ Former Reynolds Metals' BaseThere's some irony in Philip Morris's chosen site for its new headquarters. The 250,000-sq.-ft. (22,500-sq.-m.) building was once the headquarters of Reynolds Metals, which similarly relocated its operations base from New York to Virginia in 1938.
The facility closed, though, after Alcoa acquired Reynolds in May of 2000.
Philip Morris will lease the facility - but not from Alcoa. The University of Richmond two years ago acquired the facility, along with an adjacent 35 acres (14 hectares).
Terms of the Philip Morris lease of the old Reynolds headquarters were not released. The building will only need "minor renovations," company officials said.
The onetime Reynolds structure sits only a few miles from Philip Morris's huge Henrico County cigarette plant - which ranks as the world's largest cigarette-manufacturing operation.
"Philip Morris USA has always considered the Richmond area to be its home," Szymanczyk said. The new headquarters' proximity to the plant will greatly reduce travel expenses between New York and Virginia, company officials said.
Some corporate travel between the two states will continue, however. Although Philip Morris will vacate the headquarters space it occupies at both 120 Park Ave. and 100 Park Ave., parent firm Altria Group will continue to be based at the 26-story 120 Park Ave.
Analysts see the Philip Morris headquarters relocation as a prime opportunity for Altria to establish its own individual identity and to create a broader-based image. The holding company in January changed the company's umbrella name from Philip Morris Cos. to Altria Group, a strategy designed to give more focus to its other corporate units, which include Kraft Foods. Cognizant of its still-fledgling identity, Altria continues to use MO - Philip Morris's historic designation - as the symbol for its New York Stock Exchange listing.
Governor: 'Big Win' Gets Big IncentivesIncentives were also part of Philip Morris's cost-cutting relocation scenario.
Governor Mark Warner (D), speaking at the press conference held in the former Reynolds headquarters, announced that the project will receive a $3-million grant from the Governor's Opportunity Fund, which will be used to assist the Richmond region with the relocation. Philip Morris, he added, will also receive a $25-million performance-based grant from the Virginia Investment Partnership, which provides financial assistance to existing Virginia companies that undertake major expansions.
In addition, the Virginia Department of Business Assistance will provide Philip Morris with work-force training services. The company will qualify for additional tax credits as well by virtue of locating in a newly expanded state enterprise zone, the governor said.
"To bring in a Fortune 50 corporate headquarters, this is a big win for Richmond and for all of Virginia," Warner noted. "I applaud the decision by Philip Morris USA - one of the largest and most stable private employers in the Richmond region - to strengthen and extend its business relationship with Virginia. This announcement provides unprecedented economic benefit to Greater Richmond and thousands of hard-working Virginians."
The incentives will pay off, Warner maintained. The governor estimated that the project will generate an estimated $85 million-plus in state and local taxes over a 10-year period.
David Kaechele, chairman of the Henrico County Board of Supervisors, said that the relocation decision "speaks volumes to the quality of life that we have so long worked for."
Richmond Mayor Rudy McCollum hailed Philip Morris "as such a strong pillar of our business community."
None of the officials at the project announcement mentioned any other competing incentive offers. New York Mayor Michael Bloomberg's administration has opposed large subsidy packages to retain companies. (For more, see this issue's Incentives Deal of the Month, "Shift of $4.8M of Incentives Keeps 1,500 Bear Stearns Workers in New York.")
NYC Smoking Ban Not MentionedStill uncertain is how many employees will actually occupy the new Virginia headquarters.
The relocation, according to a statement from Philip Morris, "will impact all 682 employees currently based in New York." State officials, however, have said that they expect the project to create some 450 jobs. Szymanczyk didn't make any job estimates at the project announcement. Several hundred of the relocated positions pay at least $100,000 a year, state officials said.
Philip Morris has considerable time to determine how many headquarters positions will be relocated. The move won't be completed until June of 2004. "We are making this announcement more than 15 months in advance of completing the move of our headquarters to ensure our ability to implement this plan in a way that is sensitive towards our employees and minimizes the disruption to our business," Szymanczyk explained.
New York City's looming ban on smoking in almost all bars, restaurants and work places apparently wasn't a factor in the decision. Spearheaded by Bloomberg, the prohibitions go into effect on April 1.
Philip Morris's headquarters had been exempted from a less-stringent smoking ban that went into effect in 1995. The company had previously responded to New York City's tougher anti-smoking laws by threatening to relocate its headquarters.
Company officials, however, made no mention of the city's smoking ban in announcing the headquarters move.
A wide range of development agencies assisted with the relocation project, Warner said. Groups involved in the project included the Virginia Economic Development Partnership (www.yesvirginia.org), the Greater Richmond Partnership (www.grpva.com), the Greater Richmond Chamber of Commerce(www.grcc.com), the Henrico County Economic Development Authority (www.henricobusiness.com) and the Richmond Department of Economic Development (www.ci.richmond.va.us), Warner noted.
©2003 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.