Maryland loses its fourth Fortune 500 Company in as many years

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Yesterday, Hartford, CT-based Aetna announced that it entered into a definitive agreement to buy Bethesda, MD-based Coventry Health Care for $5.7 billion in cash and stock, a move Aetna said would help it expand further into government-backed programs like Medicaid and Medicare. The deal is considered to be a reaction to the Supreme Court ruling upholding President Obama's comprehensive health care reforms and will help Aetna expand into government-based insurance. Unfortunately for Maryland, the deal also means that the state will lose yet another Fortune 500 company.  

The loss of Coventry will be the state's fourth F-500 company loss in four years, leaving Maryland with only three firms on the list of the 500 largest US companies (in terms of annual revenue). Admittedly, Maryland isn't really known for being a business-friendly state (particularly when it comes to large corporations) since its relatively high taxes and regulations, coupled with a liberal government in Annapolis, are often considered hostile to business. To make matters worse, unlike most other liberal states with stiff taxes/regulations, such as California, New Jersey, and Connecticut, Maryland has a large competitor nearby with just the opposite approach to big business. 

Located just across the Potomac River, Virginia is frequently cited for its  business friendliness and, along with other conservative states in the South such as Georgia and Texas, is frequently ranked as one of "the best states for business." On top of that, Maryland shares the Washington Metro Area with Virginia, meaning that if a company wanted to relocate its headquarters to the Metro Area, the decision isn't really too hard as to which side of the river to relocate to (DC's politics/taxes/regulations are very similar to MD's) barring any aggressive incentives offered by Maryland. Yet another factor is that Maryland is heavily reliant on the federal government for providing employment to residents, and has (until recently with looming federal budget cuts) had little incentive to attract large businesses to the state.

Hilton Headquarters in Tysons Corner, VA

Not surprisingly, Northern Virginia has managed to nab three large corporations relocating to the Washington Area over the past five years (two of them Fortune 500 companies): Volkswagen of America (including subsidiaries Audi and Bentley) in 2007, Hilton Hotels in 2009, and Northrop Grumman in 2010. However, they weren't easy wins as Maryland offered numerous incentives and Virginia had to counter with their own steep incentives, particularly for Northrop Grumman. As a result of its low attractiveness to large corporations, most of Maryland's large businesses are homegrown. These include the state's three remaining Fortune 500 companies: Lockheed Martin, Marriott International, and Host Hotels & Resorts.

So clearly Maryland has not been very successful at luring large corporations to the state, but for the state to lose the big businesses already located there, especially at this blinding rate, is particularly astonishing. Granted, none of the F-500 businesses lost moved away of their own accord, but were rather purchased by or "merged with" businesses headquartered in other states. In addition, it would seem that the fact that in all four cases the business doing the "buying out" was the company located out-of-state and the business being bought was Maryland-based is purely coincidental, since it could have easily been the other way around. In fact in the cases of Connecticut-based Stanley Works merging with (and taking control of) Towson, MD-based Black & Decker, Chicago-based Exelon Corp. purchasing Baltimore-based Constellation Energy, and Illinois-based SXC Health Solutions purchasing Rockville, MD-based Catalyst Health Solutions  the companies doing the buying were actually smaller revenue-wise than the companies they were purchasing. Stanley Works wasn't even a Fortune 500 company before they merged with Black & Decker. Aetna's purchase of Coventry is the only case where the buyer is actually bigger. It's also interesting to note that two of the four out-of-state corporations (Aetna and Stanley Works) are based in Connecticut, though this is likely another coincidence.

Future NIAID Headquarters in Rockville, MD

Future Exelon Building in Baltimore

Despite the loss of over half of its Fortune 500 businesses in such a short time span, the future isn't totally grim for Maryland.The unemployment rate for July was a relatively low 7% and the state is still the wealthiest in the nation in terms of household median income.   A number of federal agencies such as the US Dept. of Health and Human Services and the Nuclear Regulatory Commission have also recently expanded operations in the state. However, in the near future deep cuts to the federal budget imposed by Congress will definitely have a negative impact on the state's economy. The state also has the second-largest biotech hub in the United States, although biotechs have not been immune to out-of-state (or even out-of-country) takeovers. Also, despite the losses of F-500 headquarters, most of the businesses lost still plan to maintain a significant presence in the state including Aetna/Coventry, which stated that there would be no near-term job losses.  Catalyst HS has made a similar claim. Exelon is actually constructing a new office tower in Baltimore. Inevitably though, there   will be some job loss due to overlapping roles of personnel and cost-cutting measures. 

While the state of Maryland has had absolutely no control over the losses of four of its Fortune 500 companies, the state does have control over how financially attractive it is to out-of-state businesses looking to relocate to or within the Mid-Atlantic. While I'm a strong believer in businesses paying their fair share, I also feel that the state should be more aggressive in offering  incentives, including tax-breaks, to lure companies away from Northern Virginia and other states. There was absolutely no excuse for Maryland to lose Hilton Hotels to Virginia when the state is already a hub for the hospitality industry, with Choice Hotels, Marriott, and Host Hotels & Resorts already located there. The quality of life in Maryland is excellent, with best-in-the-nation schools, recreational options, public services, and transportation options. At the end of the day though business executives look at their bottom line, and Maryland's high cost of doing business isn't really favorable to it.