Amazon opens bidding to cities for $5 billion 'HQ2', a second headquarters

Technology


(Reuters) – Amazon.com Inc (AMZN.O) said on Thursday it would build a $5 billion second headquarters in North America, kicking off a competition between cities and states to offer tax cuts and incentives that could bring 50,000 new jobs.

The largest e-commerce company said it intended to create “HQ2”, a headquarters that would be a “full equal” to its Seattle office, Chief Executive Jeff Bezos said in a statement. The company wants a metropolitan area of more than a million people with an international airport, good education and mass transit.

Companies with two headquarters are rare and distance could challenge the management abilities of Bezos and other leaders, but some investors and analysts also saw the geographical diversification as a way to cut costs and risk.

“The company is changing radically and it depends so heavily on disruptive thinking. Moving to a new city and finding a new talent pool is a good idea,” said Antony Karabus, chief executive of HRC Retail Advisory. Amazon’s growth rate means they need thousands of new employees every year, he added.

Many cities have a cheaper cost of living than Seattle, and Amazon also wants subsidies. Incentives from land to fee cuts to relocation packages will be a major part of the decision, Amazon said, and local governments have shown they will go to great lengths to secure jobs and investment. In return, it promised up to 50,000 jobs averaging more than $100,000 in annual compensation over the next 10 to 15 years.

Wisconsin’s legislature recently voted to give Taiwanese manufacturer Foxconn a $3-billion incentive package to build a $10-billion liquid crystal display factory in the state, for example.

Cities and states immediately began expressing interest. Dallas has already contacted Amazon, Mayor Michael Rawlings said, and Kentucky plans to submit a formal bid. Houston is interested and Chicago Mayor Rahm Emanuel has made a case for his city in discussions with Bezos, a Chicago spokesman said.

Toronto’s mayor John Tory called the Canadian city a “prime candidate.” St. Louis Mayor Lyda Krewson said her city is “putting together a team to make a competitive bid.” Pittsburgh also plans to compete.

Amazon’s investment plan gives it new leverage with politicians at a time when it has been criticized for its effect on bricks-and-mortar retailers. President Donald Trump has criticized the company as doing “great damage”, costing jobs in cities and states. The Wisconsin Foxconn factory will be in the home district of Paul Ryan, Speaker of the U.S. House of Representatives.

Amazon said it was seeking proposals by Oct. 19 and would select the location next year.

More than 50 cities have the 1-million metropolitan area population Amazon targets. Likely contenders could include U.S. Midwest states, where Amazon has many of its warehouses; Texas, which is the base of the Whole Foods Market grocery chain it acquired this year; and other business-friendly states.

Amazon has been awarded more than $1 billion in state and local subsidies since 2000, according to estimates by watchdog Good Jobs First, which collects information on state subsidies from government filings, academics and news reports. Texas leads the way with the value of subsidies to Amazon, followed by Illinois, Kentucky, and Ohio, it said.

FILE PHOTO: An Amazon.com Inc driver stands next to an Amazon delivery truck in Los Angeles, California, U.S. on May 21, 2016. REUTERS/Lucy Nicholson/File Photo – RC117144E570

“Amazon’s business model changed from avoiding state sales tax collections to seeking economic development incentives,” said Greg LeRoy, executive director of Good Jobs First.

Seattle has become an expensive city, ranking 44th on the Economist Intelligence Unit global cost-of-living ranking, making expansion in another state a potentially low-cost alternative, regardless of subsidies.

Amazon may be looking for “more affordable” locations such as Detroit or Atlanta, said Daniel Morgan, vice president and senior portfolio manager, at Synovus Trust Company in Atlanta. Synovus holds a “large” position in Amazon, he added.

Amazon’s shares closed up 1.2 percent at $979.47.

SPRAWLING SEATTLE FOOTPRINT

Amazon, which began as a bookseller, has grown into the internet’s biggest retailer, built an award-winning movie studio, and has expanded around the world. Its workforce has exploded to more than 380,000 from under 25,000 since it moved to downtown Seattle in 2010.

The company’s total revenue has grown to $136 billion at the end of last year, from $34 billion in 2010. Amazon recently snatched up Whole Foods Market for $13.7 billion.

The “HQ2” project would initially need more than 500,000 square feet and up to 8 million square feet beyond 2027, Amazon said.

“We want to find a city that is excited to work with us and where our customers, employees, and the community can all benefit,” Amazon said. Its Seattle campus spreads across 8.1 million square feet in 33 buildings and employs more than 40,000 people.

Seattle Mayor Ed Murray said his office immediately began conversations with Amazon about the company’s needs and its long-term plans for operations in the city. “But, we also must know headwinds are coming. Unprecedented growth will not happen forever and my upcoming budget will reflect that.”

Incentives for Amazon’s new headquarters could make sense as a long-term investment, said Michael Mandel, chief economic strategist for the Progressive Policy Institute, a liberal think tank.

“The question is, how much of a tax break would you have given to have Apple set up shop in your state? It’s not so much the jobs as becoming a focal point for growth. No one can put a price tag on that.”

Writing by Peter Henderson, Additional reporting by Karen Pierog in Chicago, Supantha Mukherjee and Aishwarya Venugopal in Bengaluru, Karen Pierog in Chicago, Caroline Valetkevitch and Daniel Bases in New York; Editing by Saumyadeb Chakrabarty and Nick Zieminski

Our Standards:The Thomson Reuters Trust Principles.



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