According to a Bloomberg report, industrial goods manufacturer General Electric Company GE has shelved its plans to shift the corporate headquarters from Fairfield, CT to Dallas, TX. The strategic decision was primarily based on the unfavorable political climate that is likely to be detrimental to the overall growth prospects of the company.
Why GE is Relocating its Headquarters
Fairfield, CT has housed the corporate headquarters of General Electric since 1974. The company has an employee base of over 5,700 across the state, most of whom are employed with GE Capital, while the others are split between Corporate and Energy Management segments.
The company decided to shift its corporate headquarters in June this year due to an acrimonious tax increase by the state legislature, adversely affecting its profitability. In a statement issued to the employees of the company, the CEO Jeff Immelt observed: “As a result of this law passing, I have assembled an exploratory team to look into the company’s options to relocate corporate HQ to another state with a more pro-business environment. ….The new taxes will raise more than $1.9 billion. This will be the second highest tax increase in the state’s history behind only the more than $2 billion tax hike passed in 2011.”
The Dallas Option
As the news of a possible relocation of the corporate headquarters became public, several political leaders from different states made overtures to woo the industrial bellwether. Out of all the probable options, Dallas emerged to be a prime contender for the prized asset with an appealing tax structure and no state income tax. The city also boasted a diverse economy, which is likely to be a hotbed for the diversified businesses of General Electric.
In addition, labor is comparatively cheaper in Texas compared with the other northeast states. Moreover, Texas is one of the 21 states that abide by the Right-to-Work Law that enable companies to enjoy the right to hire and fire employees as needed to maintain their profitability. Consequently, Dallas appeared to be the most viable alternative for General Electric for relocating its headquarters.
The Ex-Im Bank Tussle
The Export-Import (Ex-Im) Bank, a federal agency that offeres loans, loan guarantees and credit insurance to help U.S. firms sell their products overseas had expired its charter on Jun 30 this year. This left several U.S. exporting companies like General Electric, Caterpillar Inc. CAT, United Technologies Corporation UTX and The Boeing Company BA in the lurch as new financing for overseas deals could not be obtained.
Texas Republicans including Representative Jeb Hensarling, chairman of the House Financial Services Committee, have vociferously campaigned against reauthorizing the bank. This has prompted General Electric to revisit its intention to shift its corporate headquarters to the state and has even threatened that it might shift its manufacturing work and the related businesses and jobs to international shores if the bank is not reauthorized.
Whether General Electric will indeed take such a drastic step in the future remains to be seen. In the meanwhile, this Zacks Rank #3 (Hold) stock has remained tight lipped about its possible choice for relocating its headquarters. We wait with bated breath for further updates from the company.
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