Illinois Could See More Money Walking to Florida with Recent Office Depot Consolidation

As soon as Office Depot and OfficeMax merged, it became necessary to address the challenges and opportunities presented by the consolidation of two major office-supply companies. First, both companies’ boards of directors needed to select a new CEO to run the combined entity. Then they needed to decide on a new corporate name and, finally, through in-depth analysis, decide where to locate their new corporate headquarters.

On November 12, the board named Roland Smith as the new chairman and CEO of the merged company. Mr. Smith is considered an expert in managing complex mergers and company integrations.  He also has a wealth of experience in the retail arena and is known for increasing profit margins for the companies he has transformed. A final decision was also made that the Office Depot name would emerge as the identity of the new company.

With the first two issues settled, choosing between the two existing headquarter facilities is now front and center on Mr. Smith’s agenda. Naperville, Illinois, is currently home to OfficeMax, along with its 2,000 headquarter employees. Boca Raton ,Florida, is home base for Office Depot; 1,700 workers are employed there.

A multitude of factors need to be weighed by Office Depot in making its final relocation decision. First, moving the company from Boca Raton would threaten up to $4.9 million in incentives that Florida gave the company in 2006. Also at risk is a total $6.4 million reimbursement, granted over the next 10 years, that Palm Beach County provided to Office Depot in exchange for remaining in the county and building its current 121,000-square-foot corporate facility. The loss of Office Depot would be a severe financial blow to the local community; the company contributes $123 million annually to the local economy. There are also significant enticements to remain in Florida. At just 5.5 percent, Florida’s corporate tax rate is considerably less than Illinois’ 9.5 percent, and the Sunshine State also has zero state income tax (versus Illinois’ 5 percent) for its residents. In addition, the Office Depot building is only 80 percent occupied and could easily accommodate an OfficeMax migration.

Illinois, on the other hand, has a real uphill battle. When the current session ended last month, state legislators were early in the process of weighing a $53 million incentive package, to be taken over fifteen years. This would be contingent upon the company creating 200 new jobs, on top of retaining all current employees. In addition, the company must agree to spend $150 million within the state, presumably to build a new headquarters building. With revenue shortfalls to their budget, and other incentives already granted to Illinois corporations, it will be a tough vote. A special session is being considered for this month to look into the matter.

While public speculation is underway, it would appear on the surface that the Boca Raton may have the upper hand. Add to this the fact that Florida’s governor, Rick Scott, is up for re-election next year. The governor constantly refers to his job creation successes as the cornerstone of his campaign. It would seem reasonable that Scott would pull out all the stops, including further tax incentives, to keep Office Depot in his state. Needless to say, it would be devastating news for him to lose the 1,700 jobs, rather than be able to tout the new jobs created through the merger.