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Basch Report
Jax Daily Record Thursday, Jun. 14, 201805:20 AM EST

Activist investment fund targets Web.com

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Stock price, which dropped after disappointing earnings, surges after Starboard Value Fund buys shares.
by: Mark Basch Contributing Writer

Web.com Group Inc.’s stock dropped May 4 following a disappointing earnings report, but it began a rebound the following week.

That’s when activist investor Jeffrey Smith and his Starboard Value fund began buying shares of the Jacksonville-based company, which provides website development services for businesses.

Starboard disclosed in a Securities and Exchange Commission filing Friday that it has accumulated 4.6 million Web.com shares, or 9.4 percent of the company’s stock.

“It is now apparent why shares of Web.com have been trending higher since the company reported disappointing first quarter results back in May,” BWS Financial analyst Hamed Khorsand said in a research note Monday.

“The investment firm did not disclose specific intentions, but we believe it could be the needed remedy to several quarters of Web.com reporting a decline in subscriber numbers,” Khorsand said as he upgraded his rating on the stock from “hold” to “buy.”

Starboard’s SEC filing said it bought the stock because of a belief the shares “were undervalued and represented an attractive investment opportunity.”

However, it also said the firm could make recommendations “concerning changes to the capitalization, ownership structure, board structure (including board composition), potential business combinations” and other matters.

The late Friday filing prompted a Friday evening news release from Web.com saying it “welcomes open communication with its shareholders and values any input and suggestions that may advance its goal of enhancing shareholder value. We expect to engage in a constructive dialogue with Starboard moving forward.”

Starboard’s interest comes about a year after reports surfaced that private equity firms were interested in buying Web.com.

CEO David Brown wouldn’t comment on that when asked by analysts during the company’s quarterly conference call in August, but he left the door open for a possible buyout at some point.

“I think it’s worth noting that we’ve always been open to whatever would build long-term shareholder value, whatever maximizes our shareholders’ interests, and we’ve said numerous times and continue to say that we talk to lots of people from strategic to financial players in the market,” Brown said during the call.

Web.com currently is headquartered in two buildings at Flagler Center, but is planning to move next year to a new six-story building at 5379 Gate Parkway called Town Center Two.

Khorsand expects Starboard’s interest to force some action.

“We are upgrading our rating to a Buy from Hold solely on the expectations Starboard is not a firm that goes quietly in the sunset when they have found a target and is one that would very likely force some changes,” he said.

“These changes could be management and Board composition or forcing Web.com to get acquired. In either case, we believe this is a game changer scenario that would be a positive for Web.com shareholders compared to the path management has been on.”

Web.com’s stock rose $2.40 to $23.45 Monday after Starboard’s late Friday disclosure.

Ameris Bancorp, ACFC executives make moves

It didn’t take long for top executives of Ameris Bancorp and Atlantic Coast Financial Corp. to make changes after Ameris completed its acquisition of Atlantic Coast.

The three top executives of Atlantic Coast Financial last week were named the new top management team for Palm Beach Gardens-based FirstCity Bank of Commerce.

Former Atlantic Coast CEO John Stephens will be FirstCity’s CEO, former Chief Financial Officer Tracy Keegan will be president and CFO of First City and former Chief Credit Officer Phillip Buddenbohm will be chief lending officer of First City.

First City Chairman David Worley said in a news release the new team has “a proven track record in creating a high-growth, high-performing franchise in great markets.”

Meanwhile, Ameris also announced changes last week. Executive Vice President and Chief Operating officer Dennis Zember will be promoted to president and CEO. Current President and CEO Edwin Hortman will remain as executive chairman.

Hortman said in a news release the moves are part of succession planning that has been ongoing for several years.

Ameris completed its acquisition of Jacksonville-based Atlantic Coast on May 25. Ameris officially is headquartered in Moultrie, Georgia, but its executive offices are in Jacksonville.

CSX short-line tracks up for sale

CSX Corp. last week put six more short rail lines up for sale as the Jacksonville-based company continues to shed unwanted assets to increase efficiency.

CSX said in a news release the six rail segments, totaling 650 miles, could potentially be operated more efficiently by a “highly qualified third party.”

Three of the six lines are in upstate New York and the others are in Kentucky, North Carolina and West Virginia.

This year, CSX also put 175 miles of track up for sale in Georgia and Alabama.

Fund manager profits from FRP

One fund manager who invested in Jacksonville-based FRP Holdings Inc. is very pleased with the real estate developer’s performance this year.

“FRP Holdings is one of our most successful investments in the fund’s history and has contributed the largest profit in total dollars to date,” Bill Chen, managing partner of Rhizome Partners, said in his first-quarter letter to shareholders.

FRP’s stock rose 27 percent in the first quarter after the company agreed to sell a portfolio of 41 industrial warehouses for $358.9 million.

Chen said in the letter the fund actually sold its FRP shares before the quarter ended.

“This is a symptom of having an investment reach fair value in a relatively short period of time. It forces us to sell our position in order to lower downside risk,” he said.

Rhizome began buying shares of FRP in mid-2015, the letter said. It did not say how many shares it owned or the size of its profit.

Taylor Morrison buying AV Homes

Taylor Morrison Home Corp. announced an agreement last week to buy AV Homes Inc., a deal motivated in part to enter the Jacksonville market.

“The joining of Taylor Morrison and AV Homes supports our strategic growth priority by bringing us deeper into five of our current markets, adding Jacksonville to the portfolio, and further expanding our offerings in the affordable first-time buyer and active adult consumer segments,” Taylor Morrison CEO Sheryl Palmer said in a news release.

Both companies are headquartered in Scottsdale, Arizona. Taylor Morrison is a national homebuilding and development company, but AV Homes’ primary operations are in the Jacksonville, Orlando, Phoenix, Charlotte and Dallas-Fort Worth markets.

According to its website, AV Homes is building houses in five Northeast Florida communities between Fernandina Beach and St. Augustine.

Taylor Morrison agreed to buy AV Homes for cash and stock valued at about $963 million.

The companies expect to complete the merger late in the third quarter or early in the fourth quarter.

TSYS buying Jacksonville’s iMobile3

Payments technology company Total System Services Inc. announced an agreement to buy iMobile3, a Jacksonville company that also offers payment technology solutions.

Terms of the deal were not disclosed.

Total System Services, which operates under the brand TSYS, is a publicly traded company based in Columbus, Georgia. It produced revenue of $4.9 billion last year.

Clarification

Although FDIC data indicates Jacksonville-based Florida Capital Bank currently has eight banking offices in four markets, Florida Capital says it operates four branches in Jacksonville, Gainesville, Orlando and Tampa. It responded to a report in this column last week about community banks.

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