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- 2012 - February - 13th -

Investors unsure about Fidelity’s restaurant strategy

by Mark Basch

Fidelity National Financial Inc. last week reported better-than-expected fourth-quarter earnings, and it increased its quarterly dividend by 2 cents to 14 cents a share. But its stock price fell through the week.

That might indicate that investors aren’t sure what to make of FNF’s continuing foray into the restaurant business.

Before it announced fourth-quarter earnings of 78 cents a share — 3 cents higher than the average forecast of analysts surveyed by Thomson Financial — and the dividend hike, Jacksonville-based FNF also announced an agreement to acquire the O’Charley’s Inc. restaurant company.

FNF is mainly a title insurance company but is no stranger to the restaurant business. The company has long had a policy of investing its excess cash in non-title businesses, and restaurants have been a particular focus.

It disclosed last fall that it already had acquired a 9.5 percent stake in O’Charley’s, which operates more than 340 restaurants under the O’Charley’s, Ninety Nine and Stoney River names.

It also owns 45 percent of a company called American Blue Ribbon Holdings, which operates the Village Inn, Bakers Square and Max & Erma’s chains.

FNF Chairman Bill Foley is particularly interested in restaurants. From 1994 through 2000, he was CEO of CKE Restaurants Inc., which operates the Hardee’s and Carl’s Jr. fast-food chains, while remaining as CEO of FNF.

FNF announced an agreement last week to buy the remaining O’Charley’s shares that it doesn’t own for a total of about $196 million. In the company’s quarterly conference call, Foley said FNF plans to integrate O’Charley’s into its other restaurant company.

“We have been seeking an investment in a larger scalable strategic restaurant operating company to complement our successful investment in American Blue Ribbon Holdings,” Foley said.

“There is a real opportunity to continue to improve the operating performance at O’Charley’s and to build on their current momentum. We look forward to having the ABRH and O’Charley’s teams working toward that end,” he said.

Foley also said FNF plans to restructure its ownership interest in ABRH to make the restaurant business “a consolidated entity within our overall group.”

Once it consolidates O’Charley’s into its restaurant operations, it will seek to grow the business.

“Hopefully, we’ll find another opportunity nine months or one year out from the O’Charley’s acquisition,” he said.

While FNF looks at a successful long-term investment in the restaurant business, analyst Mark Dwelle of RBC Capital Markets thinks it could hurt the stock in the short term.

“We believe that the company’s acquisition of O’Charley’s could represent a near-term distraction as well as a slight drag on profitability, which could keep a lid on significant share price growth until investors gain some comfort with the deal,” Dwelle said in a research note.

But Dwelle said FNF is doing a good job operating its core title insurance business, and that bodes well for the stock’s long-term outlook.

“While FNF shares are not as favorably valued as last quarter, we believe that there is still a positive bias to the story for investors with an 18- to 24-month outlook on the real estate market. Fidelity has a high degree of operating leverage, and a return to even moderate growth in mortgage activity could result in an even greater positive impact to bottom-line results,” he said.

RailAmerica continues climb

After reaching record highs last week following two acquisition agreements, RailAmerica Inc. went even higher last week after reporting fourth-quarter adjusted earnings of 31 cents a share, 9 cents higher than the average Thomson forecast.

The Jacksonville-based operator of short-line railroads jumped by $4.82 at the opening bell Thursday to $22.89 after the report, but that seemed to be an aberration. The stock fell back and closed at $18.16 Thursday, up 9 cents on the day but still a record closing high.

“We continue to believe that RailAmerica, with its organic and external growth prospects and productivity enhancement initiatives, is well positioned to benefit from the solid rail industry trends,” Dahlman Rose & Co. analyst Jason Seidl said in a research note Friday. But he does not expect the stock to keep rising.

“That said, we maintain our ‘hold’ rating, as shares appear nearly fully valued,” he said.

Oracle buying Taleo for $1.9 billion

Taleo Corp.’s stock jumped in December on speculation that Oracle Corp. might make a play for the “talent management” software company. Turns out that the speculators knew what they were talking about.

Oracle and Taleo announced an agreement Thursday for Oracle to buy Taleo for $46 a share, a total of $1.9 billion. The buyout price is 18 percent higher than Taleo’s market price at Wednesday’s close. But it’s 40 percent higher than Taleo’s price on Dec. 5, before takeover speculation sent Taleo’s stock higher.

The speculation was sparked by an agreement by German software company SAP AG to buy a Taleo rival, SuccessFactors Inc. Analysts said a consolidation of companies in the “cloud” computing sector might lead SAP rival Oracle to go after Taleo. They were right.

California-based Taleo has about 1,400 employees, including 175 in Jacksonville. Those employees came from Taleo’s 2008 acquisition of Jacksonville-based Vurv Technologies Inc.

A Taleo spokesman did not respond to an email seeking information on how the merger will impact the Jacksonville operations.

Taleo also on Thursday reported adjusted 2011 earnings of $1.06 a share, up from 78 cents in 2010. Adjusted revenue rose 34 percent to $324 million.

Jacksonville a special market for Pollo Tropical

I’ve never been to Pollo Tropical, so I can’t rate its local restaurants. But according to a Securities and Exchange Commission filing from its parent company, Pollo Tropical’s two Jacksonville locations are something special.

The filing says its Jacksonville restaurants, along with one in Atlanta, were opened with an “elevated” format which the company hopes “will serve as the model for Pollo Tropical’s expansion outside its core Florida markets.”

The format “includes a more upscale décor, an elevated service platform where food is ordered and then brought to the guest at the table, new menu offerings including sangria and wine, and numerous other enhancements,” it says.

Pollo Tropical opened its first restaurant in 1988 in Miami and it now has 85 locations in Florida, five in New Jersey and the one in Atlanta.

The chain is currently owned by publicly traded Carrols Restaurant Group Inc. But Carrols is spinning off Pollo Tropical and another chain called Taco Cabana into a separate public company called Fiesta Restaurant Group Inc. The information about the Jacksonville restaurants was in an SEC filing for Fiesta.

After the spinoff, Carrols’ remaining business will be operating franchised Burger King restaurants.

Regency Square near bottom for General Growth Properties

This won’t come as a surprise to anyone who’s seen the empty spaces in the mall, but according to General Growth Properties Inc.’s year-end financial report, the Regency Square Mall in Jacksonville has one of the lowest occupancy rates of any of GGP’s 136 regional malls nationwide.

Regency, with 1.4 million square feet of space, was 74.1 percent leased as of Dec. 31, according to the report. Only five malls in the portfolio had lower occupancies.

GGP’s total portfolio of 136.3 million square feet was 94.6 percent leased as of Dec. 31.

One factor that increased GGP’s overall occupancy was its recent spinoff of 30 malls into a separate company called Rouse Properties Inc. The Rouse malls were 87.6 percent leased as of Sept. 30, according to that company’s most recent report.

mbasch@baileypub.com

356-2466

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