Toyota revved up some buzz in the automotive world this week when it announced that it intends to move its U.S. headquarters and 3,000 corporate jobs from California to Plano. The Wall Street Journal reports the Japanese automaker hopes to “centralize operations and improve efficiency” with the relocation, which “shines a headlight on how the South is overtaking California as a commercial and industrial power.”
While Toyota will receive $40 million in state incentives, executives and industry experts cited other advantages to the company’s new locale, including lower taxes, proximity to its manufacturing centers in the region, and cheaper energy and labor costs. The company will break ground on the new HQ by the end of the year and expects to complete the transition to Plano by early 2017.
The Bottom Line: Reuters proposes another possible motivation for the move: Toyota believes a change of scenery will allow it to bring in some new blood and “fresh ideas to shake up its culture and reverse a five-year slide in market share.” Industry observers predict the automaker will replenish its roster in Plano with talent from Texas’ engineering, marketing, and aerospace sectors, among others.
Exxon Mobil’s first-quarter earnings report this week revealed both bad news and good for the company: Year-over-year profit was down for a fourth straight quarter, but the damage wasn’t as bad as analysts had expected, the New York Times reports. The primary culprit driving the Irving-based energy giant’s losses is a continued decline in production as smaller, more agile firms have been better-positioned to take advantage of the natural gas boom, according to the Times. Net income dropped to $9.1 billion from $9.5 billion in Q1 last year, and revenue slipped by $2 billion to $106.8 billion.
The Bottom Line: Exxon was able to soften the blow of the production slowdown by slashing costs in oil and gas exploration and other areas by 28 percent, according to the Times. Its next step will be to revitalize its international operations, which took a hit when an exploration deal with United Arab Emirates expired in January. The company is currently planning new projects in Russia, Canada, Argentina, Indonesia and several other countries.
Energy Future Holdings Runs Low on Energy, Future, and Holdings
Texas’ largest electric utility company, Energy Future Holdings, began bankruptcy proceedings this week and is looking to restructure nearly $50 billion in debt. Earlier this week, company officials said the Dallas-based firm had preliminary agreements in place with some of its creditors, but at the first hearing on Thursday it became evident that “the energy company faces opposition to its restructuring strategy,” according to the Wall Street Journal. The utility says it needs to borrow another $11.8 billion to continue operating through Chapter 11, which it expects to complete within a year.
The 2009 fracking blitz proved to be Energy Future’s undoing, as the company had just emerged from a 2007 leveraged buyout in which investors bet big on coal-fired plants. Soon after the deal closed, the price of natural gas plummeted, bringing the cost of wholesale electricity down with it.
The Bottom Line: Energy Future’s financial woes are symptomatic of larger problems with Texas’ energy grid. Reuters notes that while this particular bankruptcy may not ripple all the way out to individual utility customers, state regulators are under pressure to find new ways to fund additional generation capacity, as strains on the grid are “threatening to hurt growth in the surging Texas economy.”
Winner of the Week: Big Television
Watch out, Comcast / Time Warner — there could soon be another TV behemoth in town. Dallas-based AT&T is reportedly considering a bid to acquire DirecTV, which would pool the satellite provider’s twenty million subscribers with nearly six million AT&T U-verse customers. That would put it in the same league as Comcast’s post-merger base of thirty million subscribers (assuming both deals are eventually approved). Citing unnamed sources, the Wall Street Journal reports the AT&T / DirecTV deal “would likely be worth at least $40 billion.” Neither company commented for the story.
Like the proposed Comcast merger, any deal between the two providers would need to pass muster with the Justice Department and the Federal Communications Commission. Specifically, the companies would need to prove that the acquisition “would be in the public interest and the combined company would be able to offer consumer benefits not possible outside the merger,” according to the Journal.
Losers of the Week: Tutoring Racketeers
Several Texas school districts were mentioned in a federal indictment against two Illinois tutoring companies that have been accused of bribing district officials to boost enrollment in their taxpayer-funded programs. Under the No Child Left Behind Act, low-income students at underperforming schools are allowed to enroll in private tutoring courses paid for with district money—but district employees are not allowed to recommend specific companies by name. This week’s indictment claims the owners of Babbage Net School and Brilliance Academy bribed officials at San Antonio ISD and Corpus Christi ISD (and several districts in other states) with “money, meals, Caribbean vacations and ‘services’ at strip clubs” in exchange for referrals, the Dallas Morning News reports. The court filing says that in total, the duo “bilked school districts out of $33 million” before getting busted.
Dallas ISD trustees, who have apparently been wise to this type of scam for more than a year, are lobbying the Texas Education Agency to put an end to the taxpayer-funded tutoring “racket,” as detailed in a Morning News feature in April.