- 2012 - October - 29th -

Jacksonville loses another one with PSS buyout

by Mark Basch, Contributing Writer

And another one bites the dust.

In my initial Basch Report for the Daily Record a year ago, I lamented that 25 out of 30 publicly traded Jacksonville-based companies that existed in the mid-1990s had disappeared in one way or another.

Now with the pending buyout of PSS World Medical Inc., we’re going to lose another one.

PSS, as you undoubtedly know by now, agreed on Thursday to a $2.1 billion buyout by San Francisco-based McKesson Corp.

This one particularly hurts Jacksonville because PSS represents a true local rags-to-riches story. Despite some bumps along the way, it is a success story.

The company was started from scratch in 1983 by Patrick Kelly to distribute medical supplies, and it grew into a billion dollar-plus business after a series of acquisitions in the 1990s.

Some of those acquisitions didn’t work out so well and with the company’s stock price falling, PSS agreed to a merger in 2000 with Fisher Scientific International Inc.

That deal fell apart a couple of months later and in the aftermath, Kelly was forced to resign.

The company rebounded and PSS had been consistently growing profits in recent years. But this past spring, the company hit another bump with a disappointing earnings report and an announcement it would realign its businesses to position itself better for the future.

That realignment eventually led to the buyout agreement with McKesson, which is likely to be completed early next year.

The companies weren’t saying much last week about what will happen to PSS’s Jacksonville operations, where the company employs 780 people.

But the city is losing a corporate headquarters, one that was even considering moving its offices from Southpoint to Downtown. So that’s a disappointment.

With PSS leaving, the four independent Jacksonville-based public companies that remain from the mid-1990s are Stein Mart Inc., Regency Centers Corp., ParkerVision Inc. and Waste Technology Corp. Let’s hope we can keep these around for a while.

Buyout good for PSS shareholders

A lot of questions remain about what will happen to PSS after the merger, but one certainty that PSS shareholders should be happy with the buyout.

The stock was trading at $21.60 before McKesson announced it would pay $29 a share to buy the company. That’s a 34 percent premium.

Without a merger, analysts weren’t expecting the stock to rise much on its own. After PSS announced its realignment plans in May, several analysts said they were taking a wait-and-see attitude toward the stock.

Five of the seven analysts following the company rated it as a “hold” and their target prices for the stock ranged from $18 to $25, with an average of $21.42, according to Thomson Financial. The only hope for a big jump in the stock was a buyout.

“Speculation that McKesson or one of the other leading medical supply distributors would eventually purchase PSS has been widespread for years. Thus this morning’s announcement does not come as a complete surprise,” William Blair & Co. analyst John Kreger said in a research note Thursday.

“However, we are somewhat surprised by the price, which is above the upper end of what we would have expected a buyer to pay,” he said.

PSS Chief Executive Gary Corless would not say last week if anyone else made a bid for the company, but Kreger doesn’t expect a competing offer.

“Given the relatively high price and our assumption that the company would have conducted an auction before accepting this offer, we do not expect a second bidder to emerge at this point,” he said.

EverBank increases earnings

EverBank Financial Corp.’s first full quarter as a public company was a success.

The Jacksonville-based banking company, which went public in May, reported third-quarter adjusted earnings of 30 cents a share, 3 cents higher than last year and 4 cents higher than the average forecast of analysts surveyed by Thomson.

“We are pleased to see that our asset and deposit generation platforms produced solid earnings per share and growth across all channels in the third quarter,” Chairman and CEO Robert Clements said in a news release.

“Our recent acquisition of Business Property Lending closed on schedule and we have started integrating the operations into EverBank. We remain enthusiastic about the strategic growth and diversification benefits we believe this business will bring to EverBank and its shareholders,” he said.

“EverBank reported a strong quarter highlighted by outstanding balance sheet growth (featuring 22 percent average earning asset growth) and improved credit quality,” Keefe, Bruyette & Woods analyst Jefferson Harralson said in a research note.

“Basically we view this as an in-line quarter, with EPS poised to jump next quarter with BPL now in the fold,” Harralson said.

Landstar also tops forecasts

After EverBank reported higher-than-expected earnings on Wednesday, three other Jacksonville-based companies Thursday also reported results that beat analysts’ forecasts.

Landstar System Inc. reported third-quarter earnings of 71 cents a share, up from 64 cents last year and 2 cents higher than the average Thomson forecast.

In a news release, CEO Henry Gerkens said revenue so far in the fourth quarter is higher than last year, but he is cautious about the rest of the quarter. The trucking company is expecting fourth-quarter earnings of 63 cents to 68 cents a share.

“I believe that until the uncertainty surrounding the current political environment and tax and budgetary issues are resolved, the economy will continue to grow, but at a sluggish pace,” Gerkens said.

“The guidance initially weighed on the stock on Thursday,” Dahlman Rose & Co. analyst Jason Seidl said in a research note.

“However, we are not too concerned about such guidance because it is not indicative of operational issues at the company, but is rather largely attributable to 1) the fact that fourth quarter 2012 includes one less working week than fourth quarter 2011 based on Landstar’s fiscal calendar, 2) a favorable tax benefit in the fourth quarter of 2011, and 3) general market softness,” he said.

Web.com Group earnings up

Web.com Group Inc. reported adjusted third-quarter earnings of 41 cents a share, up from 29 cents last year and 2 cents higher than the average Thomson forecast.

“Web.com delivered another strong performance in the third quarter, with revenue and profitability exceeding the high-end of our guidance,” Chairman and CEO David Brown said in a news release.

Web.com, which provides website development services for business, increased subscribers and average revenue per user in the quarter.

FBR Capital Markets analyst David Hilal said in a research note that all of the company’s key operating metrics were in line or better than he expected.

“This suggests to us that the company is executing nicely on its expanded strategy and the integration of its transformative Network Solutions acquisition. After a long period of mixed subscriber results, this marks the third consecutive quarter of positive net subscriber additions, and each one was sequentially better than the prior,” Hilal said.

Rayonier earnings lower but still above forecasts

Rayonier Inc.’s third-quarter earnings of 62 cents a share were 9 cents lower than adjusted

third-quarter earnings from 2011, but that was still 2 cents higher than the average Thomson forecast.

“We are pleased to report continued strong operating results this quarter in line with our expectations. In performance fibers, the cellulose specialties market remains strong, and in forest resources, sales increased as we added volume from our recent acquisitions,” said Chairman and CEO Paul Boynton in a news release.

“Overall core operating results were in line with our forecast, with stronger performance fibers results than we had modeled offsetting softer results than we forecasted in its forest resources segment,” Raymond James & Associates analysts Collin Mings and Paul Puryear said in a research note.

They rate Rayonier’s stock as a “strong buy.”

“In our view, Rayonier shares currently offer one of the most compelling risk/reward profiles in our REIT coverage universe,” they said.

WhiteWave IPO priced higher than planned

In recent months, we’ve seen several companies (notably EverBank) lower the stock price and the number of shares sold in their initial public offerings.

But WhiteWave Foods Co.’s IPO last week actually went better than expected.

WhiteWave said in SEC filings two weeks ago that it expected to sell 20 million shares at $14 to $16 each. But the company announced Thursday that it priced the IPO, with 23 million shares, at $17 each.

The stock opened at $19 when trading began Friday morning on the New York Stock Exchange. WhiteWave trades under the ticker symbol “WWAV.”

Dallas-based WhiteWave is being spun off from Dean Foods Co., which retained 86.7 percent of the stock. The company says it makes “branded plant-based foods and beverages, coffee creamers and beverages and premium dairy products” in North America and Europe. The business had revenue of about $2 billion last year.

WhiteWave has four plants in Europe and five in the U.S., including one in Jacksonville.

ADT dealing with activist shareholder

ADT Corp. hasn’t even been an independent company for a full month and already it’s dealing with an unhappy shareholder.

In an SEC filing, Corvex Management LP said it has acquired 5.02 percent of ADT’s shares, which it believes “are undervalued and are an attractive investment.”

According to Reuters news service, Corvex was founded by Keith Meister, an activist investor formerly associated with Carl Icahn.

The SEC filing said Corvex has “had conversations and meetings with the management of the Issuer to discuss the Issuer’s business and strategies and will seek to have additional conversations with one or more of management, the board, other stockholders of the Issuer and other persons to discuss the Issuer’s business, strategies and other matters related to the Issuer.”

ADT, the Boca Raton-based security company with a large presence in Jacksonville, was spun off from Tyco International Ltd. as a separate public company Oct. 1. The company confirmed the meetings with Corvex in a news release Thursday.

“The company engages in an ongoing dialogue with its shareholders and has had constructive discussions with Corvex and others to understand their views. ADT is committed to delivering long-term value to all its shareholders,” it said.

The Corvex disclosure was enough to send ADT’s stock up as much as $4.13 to a new high of $42.45 Thursday.



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