It matters to a community with a company's headquarters leaves town.
The perfect storm has roared ashore and washed away a Seattle icon.
For some 85 years, Safeco has been steady, reliable and taken for granted. Now it’s just been taken, in a $6.2 billion acquisition by Liberty Mutual Group. This is a smallish deal for Wall Street. For Seattle, it’s a calamity with ominous tail winds.
Safeco recently celebrated its move to downtown Seattle, where it employs approximately 1,900 in two office towers. With Liberty Mutual’s headquarters in Boston, some of the “savings” to make the deal profitable will come from eliminating or moving most of these Seattle jobs.
As with the danger of an eventual sale of Washington Mutual, the loss of a big financial services headquarters leaves a big crater in a downtown. These are companies that employ large numbers of people in concentrated center-city office space.
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To see the other consequences, check out Safeco’s Web site. It mentions 28 major recipients here of company grants, including the Wing Luke Memorial Foundation, Northwest African American Museum, Seattle Symphony, Seattle Opera and Woodland Park Zoological Society. If the experience of other mergers around the nation is a guide, this philanthropy will be cut back, perhaps severely. Must save money to make the deal work, and now Seattle is merely one outpost of a big Boston company.
This tendency is evident at Safeco itself, committing to a fraction of its Seattle giving in its other major locations. It matters where the CEO lives, and where a company decides to place most of its decision-makers and talent.
Talent and capital, the two mobile holy grails of the 21st century economy in advanced countries, will be diminished with Safeco’s passing. Seattle is better positioned than most American cities to keep replenishing, reinventing. But it would be naïve to think this blow won’t be felt profoundly. It may not happen all at once. Reassuring statements may be issued, perhaps some promises will be made. Don’t be fooled. It will happen. It will hurt.
“This is the opportunity to take West Coast inventiveness and launch it with a global brand at a substantial premium to Safeco shareholders,” Safeco Chief Executive Paula Reynolds said in a no-doubt heavily lawyered, anodyne statement. She was more forthcoming in the most recent annual report.
Although the company reported the second-highest net income in its history and increased its dividend by 33 percent, “Wall Street rewarded neither the solid performance nor our significant strides in building a solid foundation for the future,” she wrote.
Reynolds felt it necessary to once again reassure shareholders. “We do not invest in subprime securities, collateralized debt obligations, collateralized loan obligations, credit default swaps or home equity lines of credit”
There’s the rub. While Safeco is relatively small and has seen some challenges in its business, its acquisition is ultimately because of the credit crisis. This meltdown long ago moved beyond subprime mortgages to become an economic perfect storm. No one knows what trouble might be hiding in the books of every financial services company. That it would spill over to dull, reliable Safeco is, as Reynolds wrote, “a stunning outcome.”
Generations of Seattle residents with Safeco ties might be forgiven for imagining Reynolds is another executive carpetbagger brought in to sell a community crown jewel. She became CEO in 2006, coming from an energy company in Atlanta. What’s Seattle to her but a place to pick up cushy golden parachute?
But in fairness, Reynolds is playing the game of American hyper-capitalism by its ironclad rules. Although they are couched in the language of shareholder rights, the reality is constant “creative destruction,” especially through mergers. The consequences to stakeholders, including communities, long ago became an academic discussion. The issue of lost competition amid ongoing consolidation will also be moot unless there’s a sea change in policies toward anti-trust, regulation and tax treatment for mergers.
Tellingly, Liberty Mutual is not publicly traded.
For Seattle, the only question is: Who’s next?
Jon Talton is a journalist and author living in Seattle. For more than 20 years he has covered business and finance, specializing in urban economies, energy, real estate and economics and public policy. You may reach Jon Talton at email@example.com