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Firms advise vote against Fidelity’s plan

By Mark Basch, Contributing Writer

Could Fidelity National Financial Inc. be facing opposition to its tracking stock plan at this week’s shareholder meeting?

No shareholders have said publicly that they will vote against the plan to separate Fidelity’s shares into two tracking stocks.

However, two well-known proxy advisory firms, Institutional Shareholder Services and Glass Lewis & Co. issued reports recommending that shareholders reject the proposal at their annual meeting.

After seeing those reports, Fidelity last week issued a news release reiterating its support for the tracking stock plan and recommending that shareholders vote in favor of it.

“For the past several months we have carefully examined the benefits of implementing a tracking stock structure and we continue to believe that it will maximize value for FNF stockholders,” Chairman Bill Foley said in the news release.

Under the tracking stock proposal, Fidelity’s common stock will be reclassified into two tracking stocks. One, that will continue to be known as the FNF Group, will consist of its core title insurance business and its real estate technology and mortgage-related businesses.

The other, known as the FNFV Group (Fidelity National Financial Ventures) will consist of the other businesses Fidelity has invested in, including several restaurant chains and auto parts company Remy International

Inc.

The company itself will remain intact, but the two tracking stocks will reflect the economic performance of the businesses separately.

Tracking stocks have been around for a while but have lost favor on Wall Street, according to the report by ISS.

“Though tracking stock structures were relatively common in the 1990s, they had all but disappeared by the mid-2000s as many companies such as General Motors, Walt Disney, AT&T and General Electric retired tracking stocks and reverted to traditional capital structures. Much of the move away from tracking stock was due to increased complexity and lagging performance that often failed to meet initial expectations,” the report said.

“Support for the (Fidelity) tracking stock recapitalization proposals is not warranted since the potential benefits of increased transparency and investor choice are outweighed by a number of serious, intractable risks and economic consequences inherent in fracturing the shareholder base through these proposals,” it

said.

Glass Lewis also saw problems with the plan in its report.

“We are concerned with the following aspects of the recapitalization proposals: the ability of the board to reallocate the assets of each class of tracking stock without shareholder approval, the ability of the board to sell substantially all of the assets of either class of tracking stock without shareholder approval (subject to certain conditions), and the potential for conflicts of interest among the company’s directors and officers in relation to overseeing both classes of tracking stock,” it said.

Fidelity said in its news release last week that it disagreed with the two advisory firms’ analysis and gave several reasons why the plan will benefit shareholders, including greater choice in their investments.

“Creation of the FNF common stock and FNFV common stock will allow the company’s investors, as well as different investor bases, the choice to invest in either one class or both classes of FNF’s common stock, depending on their particular investment objectives,” it said.

The recommendations by the proxy advisory firms may not matter because no shareholder has indicated opposition.

Fidelity’s proxy statement shows four investment firms are the largest shareholders, owning a combined 26 percent of the stock. Officers and directors of the company control another 5.2 percent.

Three local companies disclose ‘conflict minerals’

Fidelity has filed a lot of documents with the Securities and Exchange Commission relating to the tracking stock plan, but it also was one of three Jacksonville-based companies that recently filed a Form SD with the SEC. The other two were Stein Mart Inc. and Interline Brands Inc.

Never heard of Form SD? You’re not alone.

This is a new disclosure that was mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act that requires companies to disclose their use of “conflict minerals” that originated in the Democratic Republic of the Congo or an adjoining country.

Conflict minerals include “tantalum, tin, gold, or tungsten if those minerals are ‘necessary to the functionality or production of a product’ manufactured by those companies,” according to the SEC.

The annual disclosures are due every May 31, beginning this year.

The U.S. State Department issued a statement last month explaining the reasoning behind these disclosures.

“The Department of State recognizes recent progress in the Democratic Republic of the Congo (DRC) and Republic of Rwanda towards developing legitimate supply chains for the conflict minerals,” it said.

“However, exploitation of these minerals by armed groups continues to fuel conflict, pose a threat to peace and stability, and undermine efforts by the DRC authorities, the United States, and other international partners to end decades of strife in the African Great Lakes region,” it said.

“Developing a legitimate mining industry is critical to building an economic foundation for a sustainable peace in the eastern DRC and the African Great Lakes region, which is an essential component of U.S. policy in the region.”

Fidelity actually had to file the disclosure made by Remy, because Fidelity owns 51 percent of that company.

Remy’s disclosure said its policy is “to require suppliers to use only metals that have been procured through validated supply channels so as to ensure that they are not financing conflict in the conflict region.”

Stein Mart said in its SD filing that it surveyed its vendors and found only one that said it obtained conflict minerals from the DRC, “but it is currently unknown whether they finance conflict.”

Interline’s disclosure said after surveying its suppliers, “we have no reason to believe that the necessary conflict minerals in our covered products originated in the DRC region. However, we were unable to definitively verify our suppliers’ representations prior to the date of this filing.”

Drone Aviation becomes latest Jacksonville public company

Another new public company headquartered in Jacksonville has emerged from a series of transactions with an existing public company.

Drone Aviation Holding Corp. last month acquired a Jacksonville company called Lighter Than Air Systems Inc., an aerial surveillance and communications business that produces tethered drones and tethered aerostats for military and commercial applications.

According to a letter to shareholders last week from CEO Felicia Hess, “we provide cost-effective aerial systems to government, law enforcement, military and private sector customers.

Our systems are unique in that our proprietary tethering technology allows our systems to be flown within FAA guidelines, a benefit over other free flying drones.”

The company’s flagship products are called Blimp in a Box and the Winch Aerostat Small Platform.

“These products support a gap in the military’s communications and surveillance needs which exists despite billions of dollars already spent on advanced satellites, airplanes, drones, blimps and aerostats. Our products are tactical aerial assets which we believe can be rapidly and safely deployed and are in operation and undergoing evaluation by a number of military and law enforcement agencies,” the letter said.

Drone Aviation was created after a series of transactions by an existing public company called MacroSolve Inc., a Tulsa, Okla., company that was “focused on intellectual property licensing and enforcement of our patent in the mobile app market development space,” according to its annual report filed with the

SEC.

MacroSolve was reincorporated as Drone Aviation and its ticker symbol was changed from “MCVED” to “DRNE.” The stock trades in the over-the-counter market.

The company is now headquartered in Jacksonville and Lighter Than Air Systems, or LTAS, is its main business.

MacroSolve reported total revenue of $1.45 million last year, but the company has not filed any financial data for the Drone Aviation business.

Hess has been president of LTAS since it was founded in September 2009, according to SEC filings.

LTAS was acquired by another public company called World Surveillance Group Inc. in March 2013 before that company sold it to Drone Aviation last month.

World Surveillance Group’s annual report said that the LTAS business produced revenue of $411,148 for the nine-month period in 2013 after the acquisition was completed.

Its first-quarter 2014 report showed that LTAS had revenue of $229,350.

Kraft rises after coffee price hike

Kraft Foods Group Inc.’s stock reached a new high last Monday after it raised prices on some of its coffee products for the first time in three years, including Maxwell House coffee made at its Jacksonville plant.

Responding to an increase in green bean costs, Kraft raised prices on its Maxwell House and Yuban brands by about 10 percent, according to several financial news reports.

Kraft’s increase followed an announcement by The J.M. Smucker Co. that it was increasing prices on its Folgers and Dunkin’ Donuts coffee brands.

Kraft’s stock rose as much as 80 cents to $60.52 Monday after the reports of the price increase over the previous weekend.

That was the highest price since Kraft split its businesses into two separate companies in October 2012.

mbasch@baileypub.com

(904) 356-2466

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