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Jax Daily Record Tuesday, Jul. 14, 201512:00 PM EST

Aetna-Humana merger could impact office moves

by: Mark Basch Contributing Writer

Aetna Inc. and Humana Inc. will have a lot of questions to answer as they move forward with their planned merger, including one they really can’t answer definitively right now: What are the companies going to do with their Jacksonville offices?

As the Daily Record reported last month, both companies were looking to possibly move their Jacksonville operations to other local properties. The merger will likely have an impact on their decisions.

Aetna announced its $37 billion agreement to buy Humana as the Fourth of July holiday weekend was beginning.

Aetna is by far the bigger of the two, as far as their Jacksonville presences are concerned. The company employs about 775 people in the Aetna Building at 841 Prudential Drive on the Southbank.

A month before announcing the Humana deal, Aetna told the Daily Record it was considering looking for a new site when its lease expires in that building in August 2017. However, Aetna said no decisions had been made and it could stay in that space.

Last week, Aetna spokesman Walt Cherniak said again the company hasn’t made any decisions.

“It is standard Aetna practice to evaluate all of our options when the leases on our facilities near expiration,” Cherniak said by email.

Meanwhile, Humana said it was relocating nearly 100 employees out of its offices in the Downtown SunTrust Tower at 76 S. Laura St. and moving them to two new locations in Baymeadows and Mandarin. Humana’s lease in the SunTrust Tower expires Dec. 31.

“As of now, we are moving ahead” with those plans, Humana spokesman Mitch Lubitz said by email last week.

“Of course, with the proposed merger with Aetna, they’re subject to change,” he said.

Humana once had a much bigger presence in that Downtown office and, in fact, owned the building from 1998-2004.

However, it downsized significantly in 2003 when it closed a national customer service center, laying off more than 500 employees.

The Aetna-Humana deal will face much bigger questions than these as the companies move forward, including addressing antitrust concerns as the two big health care benefits companies merge.

The Wall Street Journal also reported that investors are skeptical if the deal will be completed at all, or if a larger company like UnitedHealth Group Inc. might swoop in with an offer to buy Aetna before it closes the Humana deal.

Aetna said the buyout with a combination of cash and stock was worth an estimated $230 per Humana share when the deal was signed. But Humana’s stock rose by just $1.46 to $188.96 last Monday, the first trading day after the deal was announced. So investors aren’t showing a lot of confidence in the deal.

Aetna’s stock dropped by $8.08 to $117.43 last Monday.

FBR Capital Markets analyst Steven Halper downgraded Aetna’s stock from “outperform” to “market perform” last Monday.

“Given its large presence in Medicare Advantage, Humana is a nice asset, but results have been inconsistent,” Halper said in his research report.

“Strategically, Aetna’s revenue mix would skew to more government sources than historical levels. Given the change in mix, integration risk, and limited upside to our revised price target, we are lowering our rating on Aetna shares,” he said.

Private equity hot in Jacksonville

A study released last week by the Private Equity Growth Capital Council showed Jacksonville was one of the nation’s hottest markets for private equity investment last year.

Specifically, Florida’s 4th Congressional District, represented by Republican Ander Crenshaw, ranked fifth in the country with $6.6 billion in private equity investment last year, according to the group’s study of investment by congressional district.

The council, a Washington, D.C., trade association for private equity firms, said the $6.6 billion total reflected investments in nine businesses. However, a spokesman for the council said the group did not have the list of companies involved.

Analysts like EverBank

Piper Jaffray analyst Peyton Green last week initiated coverage on Jacksonville-based EverBank Financial Corp. with an “overweight” rating.

“We believe that reengineering of the mortgage business and growth in commercial banking will produce improved profitability and EPS growth of 15 percent to 20 percent year-to-year,” Green said in his report.

Green’s report followed a slight downgrade by analysts at Raymond James & Associates, although they still like EverBank’s prospects.

The Raymond James analysts downgraded the stock from “strong buy” to “outperform” as part of an overall reassessment of banking stocks.

“While we continue to view risk-reward positively and see both value and growth investors gravitating towards EverBank shares if it executes upon growth and profitability targets, we see our thesis playing out more slowly than we did previously,” the analysts said in their report.

They said EverBank could double in size over the next four to five years, but that might not work out so well for Jacksonville. As it grows, “it could increasingly be viewed as an acquisition candidate given its strong organic asset generation capabilities,” they said.

St. Joe upgraded

The only analysts following The St. Joe Co., Buck Horne and Paul Puryear of Raymond James, upgraded their rating last week from “market perform” to “outperform” after they returned from the company’s annual meeting.

“The big news emerging from last week’s meeting was the official adoption of the Bay-Walton Sector Plan by all appropriate county and state agencies, which formally places the plan immediately in effect,” Horne and Puryear said in their report.

St. Joe’s plan calls for development of more than 170,000 residential units and more than 22 million square feet of retail, office and industrial space on 110,500 acres in Bay and Walton counties. The company is targeting the active adult retirement market for much of the project.

The scale of the project, which could take more than 50 years to complete, is “daunting to say the least,” Horne and Puryear said.

The analysts set a price target of $18.50 for the stock, but said that could be conservative if the initial phase of the project is a success.

“Given that we have never before attempted valuing a land development that likely will extend well past our investment careers (much less in an unproven rural location), we believe it remains prudent to maintain a conservative approach,” they said.

St. Joe’s stock rose by $1.19 to $16.97 Tuesday after Horne and Puryear’s upgrade.

St. Joe moved its headquarters from Jacksonville to WaterSound in the Florida Panhandle in 2010 to be closer to its development activities.

Analyst raises price target for ACFC

The only analyst following Atlantic Coast Financial Corp., Scott Valentin of FBR, raised his price target for the Jacksonville-based banking firm after a couple of financial moves announced last month.

Valentin said the moves, which include a tax-related gain and debt restructuring, will result in a $3.4 million gain in the second quarter for Atlantic Coast Financial and increase earnings in the future as interest expense is reduced.

“We expect profitability metrics to improve significantly in the third quarter, as the lower interest expense should move the bank closer to peer-level profitability and likely support a higher valuation,” Valentin said in his report.

Valentin, who maintains an “outperform” rating on the stock, increased his price target from $5.50 to $6.50. The stock was trading at $4.34 at the time of his report Tuesday morning.

“With improved profitability and continued above average loan growth, we think ACFC shares remain attractively valued. Longer term, we believe ACFC would make an attractive acquisition candidate, and shedding some high-cost borrowings could strengthen those prospects,” he said.

Stein Mart sales up in June

Stein Mart Inc. last week reported total sales for the five weeks ended July 4 rose 7.5 percent to $121.7 million, while comparable-store sales rose 5.8 percent.

Comparable-store sales are sales at stores open for more than one year and are considered a key indicator of a retailer’s performance.

Jacksonville-based Stein Mart operated 269 stores at the end of June, compared with 265 a year earlier.

Fifth Third names new CEO

Fifth Third Bancorp last week announced an impending change at the top.

The Cincinnati-based banking company said that President and Chief Operating Officer Greg Carmichael will be promoted to chief executive officer Nov. 1. He is succeeding Kevin Kabat, who will remain as executive vice chairman until he retires in April 2016.

Kabat has been with Fifth Third for 33 years and has been CEO since 2007. Carmichael has been with the company since 2003.

Fifth Third operates 11 branches in the Jacksonville area. The company last month said it will close about 100 of its 1,303 branches, but it is not yet announcing specific locations.

Two big mergers completed

The Kraft Heinz Co. began trading last week after the completion of the merger between Kraft Foods Group Inc. and H.J. Heinz Co.

The stock trades on the Nasdaq market under the ticker symbol “KHC.”

Kraft Heinz’s vast assortment of food products includes Maxwell House coffee made at its Downtown Jacksonville plant.

Another new company with local ties began trading this month as Rock-Tenn Co. and MeadWestvaco Corp. completed their merger into a new company called WestRock Co.

The paper and packaging company, with plants in Jacksonville and Fernandina Beach, is trading on the New York Stock Exchange under the ticker symbol “WRK.”

Dick’s Wings open in Fleming Island

ARC Group Inc. last week said its 19th Dick’s Wings & Grill restaurant opened in Fleming Island.

The company said this was the third Dick’s Wings restaurant opened this year by franchisees.

ARC Group said the Fleming Island site is a free-standing restaurant that was formerly an Applebee’s. It said converting pre-existing restaurant buildings is a key part of its strategy to grow the Dick’s Wings franchise.

“The quick turnaround offered by conversions, coupled with the relatively low cost of completing a conversion, makes them very attractive to prospective franchisees,” CEO Richard Akam said in a news release.

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