We probably haven't heard the last word on Fidelity National Financial Inc.'s $33.25-a-share agreement to buy Lender Processing Services Inc.
The ink was barely dry on the deal when the market price of LPS' stock rose above $33.25, indicating that investors are ultimately expecting a higher price.
The deal was announced at 8 a.m. Tuesday and when trading began at 9:30 a.m., the stock opened at $33.76.
The merger agreement includes a "go-shop" provision that allows LPS to seek higher offers until July 7, and some analysts said LPS may be worth more.
"Given the complexity of the deal structure and the discounted valuation of the purchase price vs. comps (comparable companies), we think some shareholders may not be satisfied with this outcome. We would not be hugely surprised to ultimately see a higher price," Sterne Agee & Leach analyst Greg Smith said in a research note.
Smith said the agreement values LPS at about 13 times his estimated earnings for 2013 and 2014, while comparable companies are trading at 15 to 16 times estimated earnings.
Of course, that complex deal structure means that LPS stockholders could get a higher value for their shares without a better offer coming in.
The deal is structured, at least for now, to give LPS shareholders $16.625 in cash and .65224 shares of Fidelity stock for each of their LPS shares. That was based on a price for Fidelity's stock of $25.489.
If Fidelity's stock price goes up before the deal is closed, LPS shareholders would benefit from the additional value of the shares in Fidelity.
In fact, Fidelity's stock rose above $27 on Tuesday after the deal was announced, adding another $1 per share in value to LPS stockholders.
However, there's another twist. The merger agreement also allows Fidelity to alter the exchange ratio and pay more cash instead of stock to LPS shareholders, so there's no guarantee of how much benefit they could get from an increase in Fidelity's stock price.
Also, Fidelity's stock price could go down and reduce the value of the deal below $33.25.
All of that increases the possibility that LPS could see a better offer, or at least that Fidelity would increase the price.
LPS Chief Executive Hugh Harris did tell the Daily Record last week that the company talked to other potential acquirers before agreeing to the Fidelity offer, so there are other interested parties.
"We believe the most likely alternative suitors would include private equity, particularly with a focus on real-estate/mortgage data analytics and software, potentially in partnership with other strategic buyers around the title insurance business," Barclays Capital analyst Darrin Peller said in a research note.
"That said, we suspect that other strategic buyers would likely find it difficult to replicate the potential synergies that FNF should be able to realize," he said.
Fidelity said it expects to realize at least $100
million in "synergies" from combining the two companies. The two companies are headquartered in the same Jacksonville office complex along Riverside Avenue and there are certain to be job losses in the headquarters operations of the merged company.
Fidelity employs about 800 people in Jacksonville and LPS employs 2,656, but a large portion of the LPS workforce is involved in operations of its mortgage processing technology and would not be impacted by merger-related cuts.
The synergies also involve opportunities to increase revenue. Fidelity's main business, title insurance, works with some of the same clients as LPS in its mortgage processing business, and the two companies see an opportunity to be an all-in-one provider of services for the homebuying process.
Peller said LPS' business could be worth more than Fidelity's purchase price standing alone and when you add in the $100 million or more in synergies, that only increases the potential value.
The bottom line is, $33.25 a share may only be a starting point.
Atlantic Coast Financial close to buyout price
Speaking of stocks trading above their proposed buyout price, Atlantic Coast Financial Corp.'s stock traded well above its $5 buyout price for most of May, reaching as high as $6.88 at one point.
However, last week the stock dipped back close to the buyout price, finishing the month at $5.01.
South Florida bank holding company Bond Street Holdings Inc. agreed to buy Jacksonville-based Atlantic Coast Financial for $5 a share, but shareholders holding 26 percent of the stock have pledged to vote against the deal, saying the price is too low.
The shareholders meeting to vote on the deal is scheduled for next week. So far, there hasn't been any hint that anyone will make a higher offer for the parent company of Atlantic Coast Bank.
Landstar lowers forecast
Landstar System Inc. last week lowered its second-quarter earnings forecast, after seeing a decline in revenue through the first eight weeks of the
quarter.
"In fact, we have seen an increase in the rate of revenue deceleration from that which was experienced in the 2013 first quarter," CEO Henry Gerkens said in the Jacksonville-based trucking company's mid-quarter conference call to update investors.
Gerkens said the major issue is a continued decline in transportation of large industrial equipment on flatbed trucks.
Landstar now is forecasting second-quarter revenue of $660 million to $700 million, which would be down from $736 million in the second quarter of 2012.
The company already was projecting earnings to be lower than last year's 76 cents a share in the quarter, but last week it reduced the forecast to 63 cents to 68 cents a share. It had previously forecast 68 cents to 73 cents.
"All that being said, current economic forecasts indicate industrial production will increase in the back half of the year, which should benefit our flatbed industrial-based business," Gerkens said.
"At this point, however, I don't believe our full year revenue goal of $3 billion is attainable in
2013, unless there is a dramatic turnaround in current economic conditions surrounding our industrial-based business," he said.
Stakool reports minimal revenue
Stakool Inc., which replaced its management in the first quarter and moved its headquarters from Jacksonville to Alpharetta, Ga., filed its quarterly report with the Securities and Exchange Commission last week and reported total revenue of just $64.
The company, which was marketing a line of natural and organic food products, had revenue of $8,202 in the first quarter of 2012.
Stakool had a net loss of $123,630 in the 2013 first quarter.
According to its SEC filing, "our management team will explore all aspects of the all-natural functional food and beverage industry, and effectively integrate and develop products tailored to those markets."
The filing said, "The management team feels confident that its understanding of the market will allow for the addition of several functional food and beverage products within the next 24-36 months that effectively capitalize on our knowledge and experience, and are capable of developing velocity throughout the all-natural retail market space."
Shoe Carnival beats forecasts
Shoe Carnival Inc. reported first-quarter earnings that were lower than last year but higher than analysts' expectations.
The Evansville, Ind.-based footwear chain had net income of 47 cents a share for the quarter ended May 4, down from 54 cents last year but 7 cents higher than the average forecast of analysts surveyed by Thomson Financial.
Total sales rose 4.3 percent to $232.3 million but comparable-store sales (sales at stores open for more than one year) fell 0.8 percent.
"Our first quarter was challenging, as we experienced colder, wetter weather through March than the same time period a year ago. However, our sales trend improved significantly in April with the arrival of warm weather, which helped us mitigate our comparable store sales decline for the quarter to less than one percent and better than we anticipated," CEO Cliff Sifford said in a news release.
"As a result, we concluded the quarter with earnings above our expectations," he said.
Former Jacksonville Jaguars owner Wayne Weaver is chairman of Shoe Carnival and its largest shareholder, controlling 24.4 percent of the stock along with his wife, Delores.
WhiteWave no longer under Dean control
WhiteWave Foods Inc. was spun off from Dean Foods Co. last fall with an initial public offering, but Dean Foods retained 86.7 percent of the stock. Last week, Dean Foods distributed additional shares of WhiteWave stock to its shareholders, reducing its stake to 19.9 percent. So Dean Foods is no longer
WhiteWave's controlling shareholder.
Dean Foods said it expects to dispose of its remaining WhiteWave shares within 18 months.
Dallas-based WhiteWave produces food and beverage products at four plants in Europe and five in the U.S., including one in Jacksonville.
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