Elanco HQ: How the deal was done

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By Mickey Shuey

INDIANAPOLIS — The state’s pitch to keep Elanco Animal Health in Indiana for the long term began with a dinner at the Governor’s Residence two years ago, after state officials got wind that the company was considering plans to acquire German conglomerate Bayer AG’s animal health division.

The dinner, attended by Elanco CEO Jeff Simmons and other company leaders, was an opportunity for Gov. Eric Holcomb to offer a full-throated commitment that the state would do whatever it took to keep the company firmly planted in the state for decades to come.

The actual negotiations didn’t begin until more than a year later, as Elanco was preparing this summer to close its $6.9 billion acquisition of Bayer Animal Health and was launching a search for a new headquarters. But when the time came, the state kept its word.

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And so, on Dec. 4, Elanco announced it would invest $100 million to develop a headquarters campus on 45 acres at the former GM stamping plant site just west of downtown Indianapolis, a deal made possible by a lucrative incentives package from city and state officials.

In total, the incentives are valued at more than $160 million, with the state providing land for the development that it purchased from Ambrose Property Group. The state said it plans to use the property’s remaining 46 acres for neighborhood redevelopment, an expansion of the White River State Park and potential growth of Elanco’s facilities.

Simmons told IBJ the company was attracted by more than just incentives; it also loved the site.

“What we see as a culture in Indianapolis, what we see we can do on the west side of the river and the western side of Indianapolis — we can be a major player, one of the only players over there,” he said. “That was actually attractive to us.”

But getting the deal done wasn’t easy.

First steps

Indiana Secretary of Commerce Jim Schellinger told IBJ this week that “there were a lot of tentacles” to pulling together the deal with Elanco.

Schellinger, who attended the Elanco dinner at the Governor’s Residence in 2018, said the deal involved several moving parts, including the state’s procurement of the 91-acre site from Ambrose as well as navigating a legal fight between Ambrose and the city.

By January, the state began talking officially with Ambrose about acquiring the site. But it made clear it wouldn’t do so for the initial asking price of more than $100 million. That’s in part, Schellinger said, because Ambrose hadn’t done much to develop the property since buying it for just $3 million from a group charged with finding new uses for former GM properties.

The state still had no plans for a specific use — other than preserving it for future large development opportunities — and had not considered offering it to Elanco.

Eventually, Ambrose agreed to sell, with the state paying $25.5 million for the property — about one quarter of the amount Ambrose had asked for, but more than what some industry insiders have told IBJ the property is likely worth.

A long summer

Meanwhile, Elanco on May 29 issued a request for cities and states to bid on its headquarters project. Elanco has been mum about what was in the request for proposals, and those who answered it had to sign non-disclosure agreements.

But states and communities that were interested had just two weeks to pull together a proposed incentives package and possible sites.

By then, Elanco — which started taking a hard look at its options in early 2020 — had already ruled out staying at its existing headquarters at Progress Park in Greenfield, because it wanted to expand to a more prominent location near an urban center. It hired Indianapolis-based Browning Investments to serve as a real estate adviser and site selection consultant.

So the state brought the city and Develop Indy — the Indy Chamber division that serves as the city’s economic development arm — into discussions on making a bid to land the Elanco headquarters in Indianapolis.

It was during these conversations that the idea of pitching the GM stamping plant site to Elanco came to the fore, Schellinger said. Another site under consideration was on Indianapolis’ northwest side, near the campus of Corteva, formerly known as Dow AgroSciences.

City and state leaders met repeatedly throughout the summer to work on the deal, although early in the RFP process, Elanco would deal directly only with Schellinger, leaving other state and city officials working in the background.

They even used code names for the project, something economic development officials often do when trying to keep negotiations a secret.

The Elanco talks were initially called Peanut Butter, a code name that appears on calendars, obtained by IBJ, of several city officials. That name switched to Meerkat soon after a July 8 meeting called “Operation Meer Butter Fingers” on one calendar.

Sources told IBJ that other communities also bid — and were in the running — particularly Kansas City, Missouri, near which Bayer Animal Health has operations.

But in mid-July, Elanco privately selected Indianapolis for the project, leading to continued conversations throughout the summer. City calendars document about 20 Meerkat meetings that included city officials, the IEDC and other entities, including Indianapolis Bond Bank.

Although negotiations played out over months, experts said they were surprised by the speed at which the Elanco deal moved. Large economic development deals can take 12 to 24 months to complete.

The final incentives package includes nearly $90 million in state tax credits, $4 million in training grants, 45 acres of property, and $64 million from the city, largely in the form of infrastructure improvements funded by revenue from a tax-increment-financing district. A TIF district collects tax revenue that is generated by new development to be used for projects generally at the site.

The deal is among the largest in state history.

“Obviously, (this is) the most incredible project we’ve ever worked on, hence our package,” Schellinger said, adding that Elanco did not believe the state’s initial offer was strong enough. “We had to continue to go back and forth, back and forth.”

‘This wasn’t staying in Greenfield’

One distinctive aspect of the Elanco deal is that it focuses as much on retaining jobs as on creating new ones. The company’s agreement with the state requires it to retain 1,600 jobs it already has in Indiana, while creating 573 more, to cash in on all the credits and other incentives.

Schellinger said city and state officials did not want those jobs to leave Indiana, particularly because the company is expected to offer an average annual wage of about $149,000.

“Think about if we’ve lost them, think — if we lost the second-largest animal health care company … in the world,” he said. “This wasn’t staying in Greenfield; we could have not submitted (a bid) and it still wouldn’t have stayed in Greenfield. This project was leaving.”

Although it’s a big investment, experts say it’s no surprise. Multibillion-dollar companies like Elanco are generally given more consideration when it comes to incentives deals, Lewellen and other experts said.

For example, Seattle-based Amazon attracted incentives packages worth billions of dollars from across the United States when it launched its $5 billion HQ2 search in 2017. Some competing cities pledged to rename themselves if the company moved there, while others — including Indianapolis — were willing to put up land, TIF dollars and a variety of tax credits and abatements.

Katie Culp, a partner at Katz Sapper & Miller, an accounting firm that works on economic development deals, said neither the city of Indianapolis nor the IEDC are “free-spending with incentives. They’re very cautious with how they support things from an incentives perspective.”

She said the use of EDGE credits — typically given to firms that create new jobs — to retain the company’s existing workforce is a fairly unusual approach for the state. Elanco is expected to get $51.2 million for job retention, along with another $21.8 million in new-jobs tax credits.

“It is a huge incentives package,” Culp said. “So, for the state to be motivated that powerfully, to put such a large number on the table, tells me that they had to have been truly concerned about losing (Elanco) — perhaps from the state altogether — because it is not something that they do easily or quickly offer up.”

Elanco said in its announcement that, in addition to the $100 million headquarters campus, it plans to invest another $200 million across its Indiana operations, which will include research and technology infrastructure at the new campus.

“The size of this incentive package makes sense given the long-term, transformational impact Elanco’s decision will have on the state, the downtown Indianapolis area, and Indiana’s leadership position in agbiosciences,” IEDC spokesperson Erin Sweitzer said.

The city and state are also hopeful the development will lead to additional investment in the area — and even on the stamping plant property — from suppliers and vendors of Elanco, as well as from other companies that work in the animal health industry.

On Dec. 2, the state officially closed on the property, and it expects to transfer the land to Elanco in the coming months.

The state incentives for Elanco are expected to go before the State Budget Committee on Dec. 16. A spokesperson for the Indianapolis mayor’s office said the city’s legislative process to approve the use of TIF for the project is likely to begin early next year, with the Metropolitan Development Commission and the City-County Council having final say.