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- 2014 - January - 13th -

Convergys expanding with big acquisition

By Mark Basch, Contributing Writer

Convergys Corp. started the new year with a bang by announcing an acquisition that will grow the company by 50 percent.

The Cincinnati-based company, which employs more than 1,200 people in Jacksonville, agreed last week to buy Stream Global Services Inc. for $820 million in cash.

The merger of the two companies that provide outsourced customer management services will grow Convergys from a projected $2 billion in revenue in 2013 to annual revenue of more than $3 billion, Convergys said.

"We believe this combination will strengthen Convergys by diversifying our client base and enabling us to offer a wider range of customer transactions in a more cost effective manner from multiple geographies, at scale," Convergys CEO Andrea Ayers said in a news release.

"Our plan is to build upon the best practices and management teams from both companies to deliver superior customer benefits and enhanced value for our clients and shareholders, and provide new opportunities for our employees," she said.

Convergys said it expects to realize $25 million in annual cost savings after the merger is completed, which is expected in the first quarter. The company would not say specifically how the merger may affect its Jacksonville operations.

"One of the best aspects of the acquisition is that it is truly about growth. For example, there is not a lot of client overlap," Convergys spokeswoman Krista Boyle said by email.

"Once the transaction is complete, the joint financial strength, commitment to excellence in operations, and client focus will result in a combined company that continues to grow and create opportunities for our employees," she said.

Convergys and its predecessor companies have been at times one of Jacksonville's largest employers, but its local employment has fluctuated over the years as the company experienced major changes.

The local operations were created 30 years ago as a Jacksonville-based subsidiary of AT&T called American Transtech.

American Transtech employed about 4,500 people in Jacksonville when it was sold to Cincinnati Bell Inc. in 1998.

Cincinnati Bell then spun off the business and other operations into a separate public company, which it renamed Convergys.

Convergys still employed more than 2,000 people in Jacksonville five years ago, but its local operations have shrunk as it sold off two of its three major business units that provided information management and human resources management services. That left the company with just its customer management business.

When it completes the acquisition of Minnesota-based Stream, Convergys said it will employ about 125,000 employees working in 135 contact centers in 25 countries.

Investors liked the deal, sending Convergys' stock up as much as $3.57 to $24.43 Tuesday after the late Monday announcement, its highest level in more than six years.

Analysts said this is a good acquisition for Convergys, but they did express some caution.

"Stream checks a lot of boxes for Convergys (nicely accretive; adds new clients, geographies, capabilities), but comes with a fair amount of execution risk as well," Robert W. Baird analyst David Koning said in a research note.

Macquarie Capital analyst Kevin McVeigh had a similar view.

"While the numbers plus strategic rationale make sense, we believe that execution will determine the success of this transaction," McVeigh said in his research note.

Gattoni promoted at Landstar

Landstar System Inc. said in a Securities and Exchange Commission filing last week that Chief Financial Officer James Gattoni was promoted to the additional position of president of the Jacksonville-based trucking company.

The board of directors also reappointed Henry Gerkens as chairman and chief executive officer on Jan. 1, the filing said. Gerkens previously had the additional title of president.

Landstar didn't make a big deal of Gattoni's promotion – it didn't even issue a news release. However, the promotion could start speculation that Gattoni is in line to someday succeed Gerkens as CEO.

Gerkens was a former CFO of the company and was eventually promoted to president before being named to succeed Jeffrey Crowe as CEO in 2004.

When Landstar filed its annual proxy statement last spring, Gerkens was listed at 62 years old and Gattoni was 51.

Another merchandising shake-up at Body Central

As Body Central Corp. continues to try and turn around its declining sales trends, the Jacksonville-based women's fashion retailer announced another shake-up of its merchandising team.

Body Central last week said that Andrea Jackson left her positions of senior vice president and general merchandise manager.

Jackson served less than a year in the job, joining the company in February during another shake-up of the merchandising team that followed the appointment of new CEO Brian Woolf.

To replace her, Body Central promoted Patti Simigran, who joined the company with Jackson 11 months ago. Simigran had been serving as senior vice president e-commerce and direct merchandising.

Body Central also said that Scott Graner, a 25-year retailing veteran, joined the company as vice president and merchandise manager.

"The merchandising team changes announced today are designed to refocus our efforts on underperforming categories through both the addition of new talent and the reallocation of proven internal talent. These changes will be critical to improving our store merchandising assortments," Woolf said in a news release.

Jacksonville Bancorp directors resign

Jacksonville Bancorp said in an SEC filing last week that two directors resigned from its board.

William Klich resigned from the board of directors of the company and its subsidiary, The Jacksonville Bank, on Jan. 2. Terrie Spiro did the same on Jan. 3.

The resignations came less than a month after Kendall Spencer was hired as Jacksonville Bancorp's new president and CEO. Spencer also was appointed to the board of directors.

McKesson raises price for Celesio

Getting back to deal-making, McKesson Corp. last week increased its price to acquire German pharmaceutical distributor Celesio AG, in order to satisfy one large shareholder who was threatening to block the deal.

McKesson originally in October agreed to pay 23 euros per share for Celesio, but it increased the price to 23.5 euros last week. The Associated Press reported that equals an increase from about $31.29 a share to $31.97.

McKesson said in a news release that this is its "best and final offer."

McKesson said in October that the offer for Celesio, including the assumption of debt, was worth $8.3 billion. It did not give a total value of the new offer.

The Celesio merger is McKesson's first major deal since it acquired Jacksonville-based PSS World Medical Inc. last year.

San Francisco-based McKesson said the combined company will be one of the world's largest pharmaceutical wholesalers and providers of logistics and services in the healthcare sector. It will have annual revenue of more than $150 billion, with about 81,500 employees in more than 20 counties.

McKesson raised its offer last week to satisfy U.S. hedge fund Elliott Management Corp., which controls about 25 percent of the voting rights for Celesio's stock. Elliott said last month it would not support the 23 euros-per-share offer.

McKesson said Elliott did agree to the 23.5 euros offer.

McKesson's stock rose as much as $7.19 to a record high of $177 Thursday after the new agreement was announced.

Genesee buying rail lines

The new year seems to be bringing out the acquisitive spirit in everyone. Genesee & Wyoming Inc. announced its first acquisition since buying Jacksonville-based RailAmerica Inc. for $1.4 billion in late 2012.

Connecticut-based Genesee agreed to buy 660 miles of rail lines running through South Dakota, Minnesota, Wyoming and Nebraska from Canadian Pacific.

Genesee historically has been very active in mergers and acquisitions, but it took a break in 2013 as it integrated the RailAmerica operations.

Genesee agreed to pay $210 million for the Canadian Pacific operations, which it expects to generate annual revenue of about $65 million. Genesee is projected to have revenue of nearly $1.6 billion for 2013.

Genesee operates 111 short-line railroads in 37 states and Canada.

Stein Mart comp sales up again

Stein Mart Inc. continued to post strong sales gains through the holidays.

The Jacksonville-based fashion retailer last week said that comparable-store sales rose 4.5 percent in the five-week period ended Jan. 4.

Total sales for what is considered in retail to be the month of December declined by 1.6 percent from December 2012 to $175.6 million. That's because the December

2012 period included an extra week.

That's one of the reasons that comparable-store sales are considered the more important indicator by retailers. Comparable-store sales are sales at stores open for more than one year and also account for shifts in the calendar.

"We are delighted with our December comparable store sales increase which was achieved despite adverse weather in much of the country," CEO Jay Stein said in a news release.

"Our strong holiday sales, which are on top of great sales increases last year, demonstrate our ability to continue to grow sales which will drive earnings," he said.

Shoe Carnival sales drop in December

Shoe Carnival Inc. saw a sharp drop in comparable-store sales in December, prompting the company to lower its fourth-quarter earnings forecast.

Shoe Carnival doesn't normally announce monthly sales data. However, the footwear chain controlled by former Jacksonville Jaguars owner Wayne Weaver said after strong gains in October and November, comparable-store sales dropped by 6.1 percent in December, as the company had double-digit traffic declines in the first three weeks of the month.

Because of that drop, the chain of 381 stores in 32 states is now projecting earnings of 3 cents to 6 cents a share in the fourth quarter ending Feb. 1, down from its previous forecast of 18 cents to 22 cents.

Shoe Carnival's stock dropped as much as $1.94 to $25.39 Friday after the late Thursday announcement.

"We are concerned that it may take some time to fully identify what caused store traffic to erode in December," Sterne Agee & Leach analyst Sam Poser said in a research note.

"We believe that Shoe Carnival management will make the best of this bad situation, but a full recovery may take a bit of time," he said.

Weaver is chairman of Shoe Carnival and its largest shareholder, controlling 24.4 percent of the stock, with his wife, Delores.

mbasch@baileypub.com

(904) 356-2466

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