On September 16, The Dialog Corporation announced that it was moving its U.S. headquarters to Cary, North Carolina, from its current base in Mountain View, California. The announcement was made at a press conference at the capitol building in Raleigh, North Carolina, where Governor Jim Hunt and Secretary of Commerce Rick Carlisle welcomed Dan Wagner, CEO of Dialog, and his staff to North Carolina. Governor Hunt said: "The relocation of The Dialog Corporation's headquarters to Cary is a testament to the Triangle area's international reputation for the highest quality workforce, research and technology facilities, and outstanding universities. I'm pleased that Dialog and other international companies recognize that North Carolina is an excellent place for high-tech businesses."
When the London-based MAID bought Knight-Ridder Information, Inc. (KRII) late last year, there was speculation about the base of U.S. operations and whether employees in the California offices would be asked to move. The company had offices in Cary, North Carolina, for the Profound service of MAID, which it then chose to make headquarters for U.S. sales, with 70 employees. The merged company chose the Mountain View location for its U.S. headquarters, moving some key executives there, such as Jason Molle, senior vice president, North America, while CEO Dan Wagner traveled frequently between the world headquarters in London and the U.S. base in Mountain View.
A company representative commented that the space and time differences in having London and California offices presented a logistical problem for conducting business. Decisions often had to wait until the next day. Employees in London frequently worked very late just to be able to talk with West Coast U.S. employees, who in turn came to work early.
The move will serve to centralize a number of departments in one location. The company's California offices will continue to house Dialog's technology team of approximately 200 people, including the content and pricing groups. The marketing, finance, and administrative functions will relocate to Dialog's existing offices in North Carolina. The move affects 150 employee positions that are now based in Mountain View and Philadelphia.
Management met on September 15 with employees, who have been given 1 month to decide whether to relocate with the company. Employees have been offered relocation packages (with individually customized dollar amounts, according to Dialog), and information and assistance from Cary representatives. They have also been apprised of a cut in pay for relocating employees that reportedly ranges as high as 23 percent. Those who choose not to move will be offered incentives to stay on the job until the end of the year to help with the transition. Additionally, the CD-ROM group in Mountain View will be moving to Oxford, England. There are 6 years remaining on the lease of the building in Mountain View. The remaining Dialog employees will occupy two floors, and the rest of the space will be rented out. Outsiders speculate that a lot of people will not accept the relocation.
Molle noted that customer support operations are handled through the regional sales offices and thus are not affected. However, included in the 150 positions are customer service help desk employees--29 in Mountain View (including management and an administrative assistant) and 23 in Philadelphia. Customers that we spoke with are concerned about the ongoing quality of the help desk operation. If experienced help desk employees choose not to move, they ask, how quickly can Dialog hire and train new ones in Cary?
An East Coast Silicon Valley
In making the announcement, Molle stressed that the close proximity of Cary to the technology-rich Research Triangle was "well-suited to our business." He said, "With this move, we can house complementary functions together for greater efficiency and cost savings in a location that is considered a new `hotbed' of technology on the East Coast." He added, "Dialog can tap the best of both coasts through our East Coast headquarters and Silicon Valley technology operation."
The Dialog press release elaborated on the details of the technology in the area.
"North Carolina's Research Triangle Park area is an integral part in the development of the Internet2 initiative. A state-supported technology development corporation, North Carolina universities, and area telecom companies, along with the state of North Carolina, are developing a local network expected to be the beginning of a new Internet. Known as the North Carolina GigaPop, the project has resulted in a high-speed network that provides services such as increased bandwidth facilitating functions such as real-time video that the current Internet does not yet support. The Dialog Corporation intends to leverage the connectivity capabilities of GigaPop in conjunction with DialogNet, the company's telecom backbone and secure network, which provides improved communications, faster speed, and secure transactions for customers and between Dialog offices."
(The hub or gigapop--giga, for billion bits per second, and PoP, for point of presence--is located at technology center MCNC, in Research Triangle Park, North Carolina. The Internet2--see http://www.internet2.edu--is a collaborative effort by more than 100 U.S. research universities, industries, and research centers across the country, working to develop an advanced network designed to provide increased bandwidth, speed, and quality of service.)
A company representative said that Dialog had been offered a free (!) 3-year connection to the high-speed network node (reportedly worth $1.4 million), and that it had been offered tax incentives in North Carolina (estimated value not available). The area also offers potential cost savings for Dialog employees, estimated to have a 20 percent lower cost of living over that of the high-priced Silicon Valley--although with the reported pay cut, that may not prove to be attractive.
While it was not mentioned in Dialog's press release, the press release from the North Carolina Department of Commerce detailed Dialog's plans to hire 200 in the area. The reporter for the Raleigh, North Carolina News & Observer on the Web (http://www.news-observer.com) stated that Dialog "will initially hire about 200 people but expects the number to eventually be much higher." Local officials clearly have high expectations for employment opportunities for its residents with Dialog, especially coming at a time of massive layoffs by Nortel in Cary.
A Dialog representative said that the cost of the move is estimated to be $4 million. No savings are expected for 1998, but they do expect to see annualized savings of $2.5 million from the move. Dialog's offices will be located in Regency Park in Cary in approximately 65,000 square feet of office space. The location is near Research Triangle Park.
In a phone interview, Dan Wagner stressed that consolidating the marketing and administrative functions in Cary was much more cost effective for the company, especially since Dialog planned "significant growth worldwide" quickly over the next few years. He said it still was important to keep the technical staff located in Silicon Valley, for the benefits of the high-tech environment, and to not be diluted by having management functions mixed with technological innovation. He indicated that the technology center in Mountain View would be remodeled in an open-plan environment, with a community feel and areas for relaxation and time-out, with ping pong, pool tables, etc.
Wagner indicated that the move arrangements have been exciting and interesting. He said: "We're a big fish in a small pond there (Cary), and here in the Valley we're a small fish in a big pond. It makes a difference. It will enable us to bring in very talented people. We've been through that difficult downsizing effort and now we're on a foundation that will enable us to grow, and that's what we're doing now."
Just 2 weeks earlier, Dialog had reported its operating results for the first half of 1998. The press release was quite rosy, announcing a half-year operating profit of $22.2 million (before exceptional items), which constituted a "400% increase over comparable pro forma 1997 first half results." (Note: pro forma means that adjustments were made to the combined pre-merger company figures so that they could be compared to the merged company figures.) The company had expected to benefit from annualized cost savings of at least $35 million from the merger, but actually achieved annualized cost savings of $47 million.
However, the company reported lower sales figures for the second quarter than in the first quarter--$73.2 million in Q2 vs. $74.9 million in Q1. Analysts reportedly had higher expectations, and shares of the company fell 13 percent the day of the announcement. Nevertheless, this coincided with the overall drop in the market in early September, and Dialog's shares rebounded a bit with the overall market recovery and are trading at around $12.50 (DIALY on the NASDAQ), about the same level as in early May.