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- 2012 - September - 3rd -

Interline buyout won’t change much

by Mark Basch, Contributing Writer

As Interline Brands Inc. completes its buyout by two private equity firms in the next couple of weeks, you probably won’t notice a lot of changes at the company.

“Really from an operational standpoint, the transaction itself doesn’t change any plans,” Chairman and CEO Michael Grebe said last week after shareholders overwhelmingly approved the deal at a special meeting.

The company won’t be publicly traded anymore, but it will still likely be filing quarterly financial reports and holding conference calls with investors because of publicly issued bonds, Grebe said.

Not only will Grebe and other top officials stay with the company after the buyout, but the management team is also making a significant investment in the company.

Interline agreed in May to a $1.1 billion buyout by P2 Capital Partners LLC and an affiliate of Goldman Sachs.

As part of the deal, Interline executives will be using some of their proceeds from selling their shares to reinvest in the company.

“I’m very proud of that,” Grebe said. “I think this is a great company with great prospects.”

Grebe wouldn’t say what percentage of the company will be owned by management but said “it’s material.”

Jacksonville-based Interline distributes maintenance, operations and repair products nationwide. It employs about 565 people in Jacksonville and 3,600 companywide.

The company reported revenue of $648.4 million and earnings of $16.5 million in the first half of 2012.

After shareholder approval, Interline anticipates closing the buyout by mid-September.

“Most of the major hurdles have been crossed,” Grebe said.

This is the second time Interline has been taken private several years after an initial public offering. Interline’s roots reach back to a Jacksonville company called Barnett Brass & Copper that went public in 1996 and was then merged into a privately owned company in 2000. The merged company was renamed Interline.

Interline went public again with an initial public offering in 2004 at $15 a share.

Shareholders will receive $25.50 a share from the two private equity firms under the current buyout agreement, which was 42 percent higher than the stock’s price before the deal was announced.

With Interline’s history of going public and then being taken private, could we see an IPO again in the company’s future?

As I said last week in speculating about Florida East Coast Holdings Corp., when private equity firms buy out public companies, they usually look to cash out a few years down the road with another IPO.

Grebe said there “has never been a master plan” for taking Interline public again after its past buyouts, and he doesn’t want to speculate on what may happen in the future.

“We’ve got to get through this one before we decide what the next step will be,” he said.

Investor pushing mall owners together

Simon Property Group currently owns all or part of every regional mall in Jacksonville except one, Regency Square Mall.

But if a major shareholder in Regency’s owner has his way, Simon may eventually own that one too.

William Ackman of Pershing Square Capital Management LP has begun a campaign urging General Growth Properties Inc. to negotiate a merger with Simon.

Chicago-based General Growth Properties owns 151 regional malls, including Regency Square.

Indianapolis-based Simon owns all or part of 161 malls, including The Avenues, Orange Park Mall and the St. Johns Town Center.

Simon tried to buy General Growth Properties when that company went through a Chapter 11 bankruptcy reorganization in 2009 and 2010. Ackman, whose company controls 10.2 percent of General Growth’s stock, thinks the company should consider a new bid from Simon.

“We believe the Simon transaction is in the best interest of GGP shareholders and will have a positive impact on substantially all other stakeholders,” Ackman said in a letter to General Growth’s board of directors that was included in a Securities and Exchange Commission filing.

Besides being good for shareholders, Ackman’s letter said the deal also will be good for the company’s malls.

“While there will be some job losses at GGP as a result of the merger, principally among the highest compensated employees at the company at corporate headquarters, the vast majority of GGP employees will keep their jobs,” he said.

“Unlike a manufacturing, industrial or consumer products company where merger synergies are often created with factory closures, automation, and large scale layoffs, the vast majority of GGP employees are at the properties, and none of the properties will be closed as a result of the transaction,” he said.

That’s good to hear, because Regency Square is one of the worst-performing properties in General Growth’s portfolio.

According to General Growth’s midyear report, the Jacksonville mall’s 1.4 million square feet of space was 64.5 percent leased as of June 30, down from 74.1 percent on Dec. 31.

General Growth’s total portfolio was 94.6 percent leased at midyear.

Unfortunately for Ackman, his plan faces some stiff opposition. Toronto-based Brookfield Asset Management Inc. owns about 40 percent of General Growth and it issued a statement last week saying it “has no interest in selling its stake” in the company.

“We are 100 percent supportive of the current management team of GGP and believe that GGP’s business plan has and will continue to create significant long term value for all stakeholders,” Brookfield said.

Shoe Carnival stock drops

As Wayne Weaver learned in the NFL, sometimes you have to exceed expectations to make everyone happy.

The former Jacksonville Jaguars owner’s footwear chain, Shoe Carnival Inc., reported second-quarter earnings of 14 cents a share, beating the company’s own forecast of 8 cents to 11 cents.

However, with its stock trading at a 52-week high the day before, Shoe Carnival’s stock dropped by $1.81 to $22.37 on Aug. 24 after the earnings report.

“We believe Shoe Carnival is a very good company with a solid management team that is executing properly. However, the results and outlook met our expectations but did not exceed them,” Sterne, Agee & Leach analyst Sam Poser said in a research note.

Poser downgraded his rating on the stock from “buy” to “neutral.”

“The stock has already passed our prior price target of $23, and given no new catalysts we see no reason to put new money to work,” he said.

Shoe Carnival CEO Mark Lemond said in a news release that company officials are very happy with its results. He said comparable-store sales (sales at stores open for more than one year) have been up by 6 percent so far in the key back-to-school season.

“With this strong start, we are optimistic about our sales and earnings prospects for the entire third quarter,” he said.

Weaver is chairman of the Evansville, Ind.-based chain of 346 shoe stores. He and his wife Delores are the largest shareholders with 24.5 percent of Shoe Carnival’s stock.

Jacksonville Bancorp gaining more capital

With its bank in need of additional capital, Jacksonville Bancorp Inc. last week announced an agreement with its largest shareholder to purchase additional stock in the company.

In filings with the SEC, Jacksonville Bancorp said that CapGen Capital Group IV LP has agreed to purchase $50 million in preferred stock that could be converted into common stock.

CapGen already owns 45.6 percent of the bank company’s stock after making a $35 million investment two years ago, when Jacksonville Bancorp merged with Atlantic BancGroup Inc. CapGen said in SEC filings last week that it has applied to the Federal Reserve Board to increase its stake to up to 49.9 percent.

Jacksonville Bancorp, the parent company of The Jacksonville Bank, has an agreement with banking regulators to have a tier 1 leverage capital ratio (capital divided by assets) of at least 8 percent. The company’s ratio was 5.26 percent as of June 30.

Dick’s Wings owner reports loss

American Restaurant Concepts Inc. last week filed its delayed first-quarter report with the SEC, showing a net loss of $94,658 on revenue of $98,083.

Jacksonville-based American Restaurant Concepts is the franchisor for Dick’s Wings restaurants. The company had 18 franchised restaurants as of March 25.

Earlier this month, American Restaurant Concepts announced an agreement for Louisiana investor Seenu Kasturi to acquire a 45.3 percent stake in the company.

Stein Mart continues strong sales trend

Stein Mart Inc. last week reported strong August sales as the company’s strategy of reducing coupons continues to pay off.

The Jacksonville-based fashion retailer said total sales for the four weeks ended Aug. 25 rose 6.9 percent to $79 million and comparable-store sales rose 5.6 percent.

Stein Mart had 263 stores in operation at the end of August, compared with 260 a year earlier.

“We are very pleased with our increased sales for August which was achieved with day-to-day regular merchandise selling and several smaller events where we attempted to replace some of the volume from last year’s August 12-hour sale, which we did not repeat this year,” interim CEO Jay Stein said in a news release.

EverBank converts cash into stock

EverBank Financial Corp. last week announced that $48.7 million in cash that was held in escrow has been converted into about 4 million shares of common stock.

The cash was related to Jacksonville-based EverBank’s 2010 acquisition of Tygris Commercial Finance Group Inc., and the stock is being issued to former Tygris shareholders. The shares will remain in escrow and will likely be released into the market, based on certain conditions, in 2015.

mbasch@baileypub.com

356-2466

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