How Delaware outhustled other states to win DuPont ag unit
Local officials in 10 weeks put together deal to retain key components of DuPont
- Officials for DuPont and Dow announced that two units of the combined company will be in Delaware.
- Five years of $1.5 million grants are being offered from New Castle County government.
- “It’s amazing how much everyone worked together and the speed in which it happened,” DuPont CEO Ed Breen said.
After two centuries of shared history between DuPont and Delaware, local officials had just 10 weeks to pull together a deal that would secure the company's future in the state it helped to build.
That meant putting together an incentive deal with enough tax breaks, subsidies and capital improvement assistance to keep thousands of jobs in New Castle County.
It also required working together to present an unrelenting sales pitch that would beat out much larger states Iowa and Indiana, a feat many analysts and other outsiders considered unlikely, if not downright impossible.
Seventy days later, Delaware emerged victorious with two out of the three businesses that will eventually be spun off from DuPont's impending merger with The Dow Chemical Co.
“It certainly wasn’t out of the question that we could lose all of it,” Gov. Jack Markell said Friday.
“That would have been devastating,” he said. “So we put together a team of collaborators and got to work immediately after DuPont and Dow announced their planned merger in December.”
That effort paid off Friday when the companies announced plans to locate the agriculture company’s corporate headquarters in Delaware.
Spinoffs to stay in Delaware after Dow-DuPont merger
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They previously had announced a specialty products company would be located in Delaware while a materials science business would be based in Dow’s hometown of Midland, Michigan.
But the agriculture company – widely considered the real jewel among the three post-merger businesses – remained in play for weeks.
The belief was DowDuPont wanted to quickly choose a home for that business.
But no one – perhaps not even the two companies – knew exactly when a decision would be reached.
As it turned out, the tight window of opportunity might have played right into Delaware’s hands.
“It’s amazing how much everyone worked together and the speed in which it happened,” DuPont CEO Ed Breen said of Delaware’s hustle.
“It was really refreshing to see,” he said. “It really incentivized us to keep two of our companies in Delaware.”
A plan comes together
The heavy lifting needed to secure the post-merger ag headquarters began in earnest just a few days after Christmas.
Only weeks earlier, state officials were taken off guard when DuPont and Dow announced plans to seek a merger in 2016 and then split into three companies by 2018.
With the future locations of those businesses still undecided, DuPont’s long-term existence in Delaware was in serious doubt.
DuPont was about to announce the single largest mass layoffs to hit the First State in recent history. A total of 1,700 of it Delaware workers were about to lose their jobs – 28 percent of its local workforce.
Perhaps to soften the blow, DuPont chose then to announce plans to locate its specialty products here. But losing the ag business to another state would have meant even more jobs losses in the immediate future.
DuPont to cut 1,700 jobs in Delaware
An emergency planning session between about a dozen key Delaware stakeholders was organized at the Carvel State Building in Wilmington by former state economic development official John Riley.
Now an executive at the specialty chemical company, Ashland Inc., Riley had helped to spearhead Delaware’s efforts to land AstraZeneca’s North American headquarters in 1999.
Those in attendance included members of Markell’s administration, the state’s congressional delegation, University of Delaware officials and some ex-DuPonters.
“The goal was to get a sense of what DuPont would look like after the merger and how we could make our pitch as attractive as possible to them,” Riley said. “I think that meeting helped get everyone’s thought process organized in the beginning.”
U.S. Sen. Tom Carper, D-Del., who had just landed in Hawaii to celebrate his 30th wedding anniversary, called into the meeting at 4 a.m. local time.
“The jobs and the headquarters of course were important,” Carper said. “But the psychological impact of losing DuPont would have been huge. I think we all knew what was at stake.”
One of the main takeaways from that meeting, he said, were action steps to undertake to secure the future DowDuPont businesses.
“We needed to create a business plan DuPont would find compelling,” he said. “Those talks continued for well over a month, led by the governor.”
Marching orders
Markell tapped Andrew Lubin, the University of Delaware’s director of real estate and a prominent business leader, to help work out an attractive incentive package.
Staff in the Delaware Economic Development Office (DEDO) began a stretch of weeks that included late night and weekend planning sessions.
“It was a lot of what we usually do to attract companies here,” said DEDO Director Bernice Whaley. “But we knew we had to act quickly in this case, so the time-sensitive nature is what really made this unique.”
U.S. Rep. John Carney, D-Del., reached out to Eleuthere I. du Pont, a member of the family that founded DuPont and its last representative on the company's board of directors.
Higher education leaders from various institutions began working to promote their facilities and research capabilities to DuPont.
The state’s congressional delegations held meetings with DuPont executives in an effort to extol the state’s virtues.
Meanwhile, members of the Delaware Business Roundtable also met with DuPont executives to discuss the business community’s engagement in state policies.
“It was simply us telling them why we are here and why we think being in Delaware is important,” said Robert Perkins, executive director of the roundtable.
A former aide to Republican Govs. Pete du Pont and Mike Castle, Perkins called the effort between the state, congressional leaders and business community the “finest example of collaboration in about 25 years.”
Delaware Competes
The most recent example of the business community’s ability to affect policy in Delaware is the recent passage of the Delaware Competes Act.
The legislation, which reformed the state’s corporate income tax structure, was a highlight of the pitch Markell made directly to DuPont executives about five weeks ago.
The bill was introduced Jan. 12 – the first day of the legislative session. Two weeks later, Markell was able to sign the bill into law.
Previously, the state had calculated a company’s corporate income taxes based on the Delaware share of its employees, property and sales. The new law removed employees and property from the equation, so those taxes could now be calculated based entirely on in-state sales.
The law also effectively gave companies a tax break.
The state is now expected to bring in less money in corporate income taxes every year, to the tune of $8.2 million in the next fiscal year and $48.7 million over the next three years.
House Majority Leader Valerie Longhurst, D-Bear, was the prime sponsor of the bill, along with the leaders of both parties – in both houses.
Longhurst said the bill was not created specifically for DuPont, but lawmakers believed it would make the state competitive.
“I think everybody in the General Assembly knew this was important,” she said. “I don’t think we all knew how important it would turn out for DuPont.”
The disadvantage of being a small state is that Delaware cannot always offer the raw resources to entice companies, she said.
But its size means it can be responsive to company needs.
“If the governor goes and says, ‘We will get that legislation through,’ they can know that time and time again we have done that,” Longhurst said. “If an issue is important to Delaware, Democrats and Republicans will work together to do the right thing.”
What is our state government hiding from you?
Perkins said DuPont’s decision likely did not come down to the Delaware Competes Act. But the symbolism of legislators from both parties coming together to pass business-friendly legislation in three weeks was not lost on the company.
“Other states have bigger checkbooks,” he said. “But Delaware showed that it is willing to do what it can to make it a more business friendly environment. If you look at the speed and the collaborative effort, the timing of that couldn’t not be better. It makes sure we are sending the rights signals.”
'The best deal'
While the bill’s passage showed how quickly state leaders could move, Markell went to DuPont to drive home the advantages of Delaware’s workforce, bioscience and agriculture industries and low tax burden.
Soon after that meeting, DuPont executives began negotiating possible incentives.
“Some of the things we couldn’t do,” Markell said. “I think they wanted to see more support in terms of their capital expenditures, but as a small state we just don’t have those resources.”
Markell and his administration knew they were competing against Indianapolis, where Dow AgroScience is headquartered, and Johnston, Iowa, home of DuPont’s hybrid seed business Pioneer.
Both states approved incentive packages aimed at landing the DowDupont ag business.
Iowa offered $17.2 million in state, city and county incentives targeted to retaining Pioneer. Indiana reportedly focused on performance-based incentives for creating jobs, although the total value was not immediately available.
Chad Hart, an Iowa State University agricultural economist, said many in his state who lobbied for the headquarters expected Dow and DuPont to pick Indianapolis or Johnston.
“The company went a third direction that I don’t think ether Iowa or Indiana expected,” he said. “We lost to somebody we didn’t know was even in the race.”
Whaley said states never know what they're up against when companies are considering a move.
“A lot of what you learn is what you read in the paper,” Whaley said. “You try to research all the advantages and disadvantages, but in the end you just have to be positive and hope you’re offering the best deal.”
Full details of the package Delaware and New Castle County offered to DowDuPont were still trickling out late last week.
The deal, according to state officials, will include taxpayer grants that could total $9.6 million over five years. In addition, the state has pledged another $3.6 million to support the creation of 400 new jobs.
Those investments will come from Delaware’s Strategic Fund, a state account specifically set aside to supply corporations with grants and loans for job creation and new construction.
Did the Dow-DuPont merger have to happen?
The bulk of the grants are expected to take the form of matching funds used to subsidize up to $200 million in upgrades at DuPont’s research facilities, most likely at the Experimental Station in Alapocas and the Stine Haskell Research Center in Newark.
Markell also has committed to pushing a new series of tax overhaul bills through the General Assembly.
Those proposed changes would lift the aggregate $5 million cap on the state’s research and development tax credits and make other modifications designed to ease the corporate tax burden on white-collar jobs of about $70,000 or more.
County reinforcements
Part of the incentives being offered to DuPont also could include five years of $1.5 million grants from New Castle County government, said Councilman George Smiley, who co-chairs the council’s Finance Committee.
He expects council to take up the issue before the end of March. The $7.5 million total could come from the county’s tax stabilization reserves or some other county revenue stream, Smiley said.
“I never liked the fact you are paying for companies to stay or come in,” Smiley said. “But you have employees here that are residents of the state. We have an interest in keeping them here with a presence and structures.”
Smiley was one of a handful of County Council members who were briefed by Markell on Thursday on how the county’s contribution would fit into the state’s incentive package.
“It is not what was floated earlier, which would have been a permanent reduction in their assessment value,” Smiley said. “This is much more preferable.”
Last month, DuPont officials contacted County Executive Thomas P. Gordon to discuss using his administrative authority to fast-track a reduction of property values on DuPont’s Chestnut Run Plaza, Stine Haskell and the Experimental Station.
Gordon denied that request, but said he supports the current proposal to bolster the state’s package.
Gordon: DuPont seeking reduction of property taxes
“The governor has done a fabulous job from day one with this thing,” he said.
“I think [DuPont] had some intention to take everything out of Delaware,” he said. “He got them to stop the bleeding and kept the largest number of employees here that he could.”
More work to do
Combined, the two spinoffs are expected to generate more revenue than the existing DuPont, according to documents filed with the Securities and Exchange Commission. Agriculture will have about $20 billion in revenue and specialty products is expected to produce $13 billion in revenue. DuPont generated $25 billion in revenue in 2014.
The new ag company also would be the nation’s largest agricultural business, surpassing Monsanto Co. as the world’s biggest seed operation.
DuPont and Dow have not yet said how many workers they expect the spinoff headquarters to employ. Some state officials said they expect the combined workforces to number in the hundreds and possibly grow in the coming years.
Markell and other state leaders, however, said their work is far from complete.
"I'm very proud of this," the governor said. "But there are still 1,700 people out there who just lost their jobs. I'm very cognizant of the fact we still have a ton of work left to do in terms of helping those people find work."
Several state agencies, higher education officials and various business groups are working to help those former DuPont workers find jobs and launch new companies.
At the same time, Markell said his administration is working to invest in lab space and attract seed funding for the startups created by those ex-DuPonters.
The hope, he said, is that some of the former DuPont buildings no longer needed by DowDuPont can be leased by new companies and existing businesses.
Putting former DuPont employees back to work
Carper, meanwhile, said he'd like to see legislators consider investing some of the state pension fund in form of seed capital for local startups.
"Not to pick winners and losers," he said. "But to provide an opportunity to grow companies in our next major employers, while earning a return on investment in the process."
Markell said providing workforce development and training opportunities through partnerships with the state's universities and colleges also will be vital to ensuring Delawareans can fill the jobs created by the specialty products and agriculture business DowDuPont will open here in the coming years.
And that will take much longer than 10 weeks.
"I'm very encouraged by how the entire community came together on this effort," he said. "Now we need to keep that going."
The Des Moines Register contributed to this report.
Contact business reporter Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel. Contact Matt Albright at (302) 324-2428, malbright@delawareonline.com or on Twitter @TNJ_malbright. Contact Xerxes Wilson at (302) 324-2787, xwilson@delawareonline.com or on Twitter @Ber_Xerxes. Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.