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North Carolina's New Incentive Helps Land Donnelley HQ, 275 Jobs
by JACK LYNE, Site Selection
PURCHASE, N.Y. In the end, R.H. Donnelley's (www.rhd.com) headquarters consolidation choice came down to the Tar Heel State's tie-breaking subsidies, said Chairman and CEO David Swanson.
"After carefully considering all of our options, North Carolina's offer of (US)$4.3 million in economic incentives over the next 10 years clinched our decision," explained Swanson, speaking at Donnelley's current operations base in Purchase, N.Y., to announce its future headquarters in Raleigh-Durham, N.C. "The grant from North Carolina's Job Development Investment Grant program was pivotal to our decision to relocate."
The Raleigh-Durham project is the second to receive a Job Development Investment Grant (JDIG), a program approved last year by the state legislature. And the payoff will extend beyond Donnelley's 140 transferred headquarters jobs. The company also plans to add another 135 jobs in Raleigh-Durham over the next three years, Swanson said.
The headquarters consolidation's seeds were sown by Donnelley's-.23 billion acquisition of Overland Park, Kan.-based Sprint Publishing and Advertising. That big buy closed in January.
"With our acquisition of Sprint Publishing and Advertising earlier this year, R.H. Donnelley became a significantly larger organization, and this move is the logical next step in the evolution of the combined organization as we build for our company's future," Swanson said.
New HQ Will Save $2 Million a YearThe Sprint acquisition was important for Donnelley, broadening its focus from primarily publishing Yellow Page directories to publishing in general.
At the same time, though, the Sprint buy created redundancies. Now with 1,400 employees, the combined company has numerous overlapping functions, including headquarters in both New York and Kansas.
Such redundancies spurred Donnelley to take an overall look at its location-related cost structure. That process led the four-month-long headquarters search. In addition to North Carolina, Donnelley considered the current Kansas and New York headquarters, as well as sites in Florida and Missouri, Swanson said.
Donnelley already had a North Carolina presence, most prominently at its 240-employee publishing plant in Morrisville in the Raleigh-Durham metro.
Raleigh-Durham, Swanson said, offers lower operating costs and will reduce travel costs through its proximity to a large number of customers and sales offices. Consequently, he explained, the headquarters relocation will save Donnelley $2 million a year.
"By consolidating these two locations into a single facility in Raleigh-Durham," said Swanson, "we can enhance our effectiveness while cultivating a more cohesive corporate culture, which will enable us to maximize employee and shareholder opportunities."
The consolidation, though, entails its own costs. Donnelley estimates that it will spend $12 million in fusing the headquarters functions. Those costs heightened the importance of North Carolina's JDIG subsidies.
"The economic incentives were key in terms of economics, because this is going to be a fairly expensive move for us," Swanson said. "As a public company, we had to make this decision with shareholders and employees in mind." Quality-of-life considerations also figured in the choice, he added.
"Raleigh-Durham is regarded as one of this country's best places to live and work," Swanson explained. "These are important elements to our employees and their families and instrumental in helping us recruit future employees as we grow."
Governor: JDIG 'Is Paying Off'Landing the Fortune 1,000 headquarters comes on the heels of the first JDIG project in May, a $9.5-million, 11-year grant to Infineon Technologies North America. The company is bringing 400 jobs to Cary in administration, finance, human resources, IT, logistics and R&D, with salaries averaging $75,000.
"R.H. Donnelley's decision to move their headquarters to the Research Triangle area is proof that North Carolina's economic development tools such as the Job Development Investment Grant are paying off," Gov. Mike Easley (D), a strong supporter of the JDIG legislation, said in announcing the project in Raleigh. "It is essential that our state continues to compete for successful companies like R.H. Donnelley, which will bring a much needed boost to our state's job market and economy."
Donnelley's JDIG aid will cover 65 percent of employment taxes for each of its jobs in the state. Starting in 2004, the company will receive aid in each of the next 10 years in which it meets required performance targets.
Donnelley's JDIG agreement specifies minimum employment goals of 112 jobs by 2004, 166 by 2005 and 220 by 2006. The contract also specifies annual salaries. Donnelley's average salaries in the agreement are higher with the first wave of headquarters-level positions, beginning at $70,000 in 2004, then going to $60,000 in 2005 and $50,000 in 2006.
The North Carolina Dept. of Commerce (www.nccommerce.com) released a JDIG economic benefits analysis. JDIG guidelines specify that grants must target projects that wouldn't otherwise locate in North Carolina but will provide benefits exceeding their costs to the state. Cumulative annual grant amounts are capped at $10 million.
Over the Donnelley grant's life, the project will generate a $325-million increase in cumulative gross state product, with $6.4 million in cumulative state costs, the Commerce Dept. estimated.
Jobs Shifting, One Plant ClosingDonnelley's headquarters consolidation will both shift and eliminate jobs.
All 60 existing New York headquarters positions will be transferred to Raleigh-Durham, as will some 80 of Sprint's Kansas headquarters positions. The other 150 Sprint headquarters employees, who work mostly in billing, collections, distribution and printing services, will remain in Kansas.
All employees in transferred positions will be offered North Carolina headquarters jobs, Swanson said.
Functional duplications, however, will prompt the elimination of about 80 non-headquarters positions in human resources, finance, IT, billing/credit collection and publishing services, Donnelley said. The consolidation initiative will also close Donnelley's 110-worker publishing plant in Blountville, Tenn. Those jobs will be transferred to the Morrisville plant, with workers offered transfers.
"This consolidation better matches R.H. Donnelley's operations to the business needs of the new combined company," Swanson said of the manufacturing shift. "While we know these reductions will be difficult for the employees involved, we will work diligently to make this transition a smooth one."
The Tennessee plant will close later this year. The headquarters relocation will be completed near the end of the first quarter of 2004, Swanson said. The company plans to announce its specific Raleigh-Durham site in late August.
©2003 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.