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Basch Report
Jax Daily Record Monday, Jan. 15, 201806:50 AM EST

Boeing, Embraer looking at merger; new CSX exec once feuded with Hunter Harrison

Aviation companies have operations in Jacksonville; Brazil could block deal.
by: Mark Basch Contributing Writer

Two global companies that are significant players in Jacksonville’s aerospace industry are talking merger, but the deal is facing a snag that may derail an agreement.

The Boeing Co. and Brazil-based Embraer S.A. confirmed last month in a joint statement they “are engaged in discussions regarding a potential combination,” adding that they won’t discuss further details.

However, other parties are weighing in, including the Brazilian government, which says it won’t approve a deal in which Boeing acquires control of Embraer.

This isn’t a regulatory matter in Brazil. The country has an ownership stake in Embraer.

Embraer is a publicly traded company with about 740 million shares outstanding, but one of those shares is a “golden share” held by the Brazilian government.

That one share gives the government veto power over any potential deal involving Embraer.

Brazil’s defense minister told the Financial Times two weeks ago that the government would allow a “partnership or joint venture” between Embraer and Boeing but will not allow Boeing to acquire control of the company.

That same report, citing unnamed sources, said Boeing isn’t interested in a joint venture and would only agree to a deal that gives the U.S. company control of the combined operations.

Boeing and Embraer have been down this road before, according to a Seattle Times story last week. It said Boeing has pursued Embraer several times since 1999, including a potential 2005 deal that was rejected by the Brazilian government.

Boeing has been operating its repair and modification facility at Cecil Commerce Center since 1999 on the Westside, where it employs 370 people, according to JAXUSA Partnership data.

Embraer opened its facility at Jacksonville International Airport, where it builds military aircraft, in 2013. The company employs 100 people locally, according to JAXUSA.

CSX hires operations executive Edmond Harris

Edmond Harris

CSX Corp. last week brought in Edmond Harris as executive vice president of operations, a railroad industry veteran who – like new CEO James Foote – had worked with previous CEO Hunter Harrison.

But there’s a twist in Harris’ relationship with Harrison – they had a public feud a few years back.

CSX’s news release said Harris has more than 40 years of industry experience, including nearly two decades with Harrison at the Illinois Central and Canadian National railroads.

The release also noted Harris served as chief operations officer at Canadian Pacific, but it doesn’t mention the connection between Harris and Harrison at that railroad.

During a 2012 proxy fight in which Harrison was pursuing the CEO job, Harris, serving on Canadian Pacific’s board, “publicly questioned Mr. Harrison’s ability to lead Canadian Pacific,” according to a story in the Toronto Globe and Mail.

In that December 2012 story after Harrison had taken over as CEO, Harrison indicated he remained bitter about that.

“Ed Harris used to work for me. He was a good friend, but if he walked into the door there … I would go and attack him,” Harrison told the newspaper.

Last week’s release from CSX did say Harris helped Harrison implement his operating plan, called precision scheduled railroading, during his tenures at Illinois Central and Canadian National.

Foote became chief executive of CSX last month after Harrison’s death. Analysts have a favorable impression of Foote but one note of caution has been his experience mostly in the sales and marketing side of railroads. So, it is not surprising that CSX brought in an executive with more experience in operations.

Harrison only served at Jacksonville-based CSX for nine months and his implementation of the operating plan was bumpy, with freight customers complaining about service disruptions.

CSX officials said they have addressed the problems, and Harris expressed confidence in last week’s news release.

“The pace of transformation that CSX has accomplished in such a short period of time has been remarkable and I am excited to get to work,” he said.

“Similar to Jim, I have spent many years implementing the scheduled railroading operating plan and I am confident that I can make an immediate contribution to CSX’s commitment to delivering value to all stakeholders.”

CSX will release its year-end financial results and hold a conference call with analysts Tuesday. The Jacksonville-based company also scheduled an investor and analyst conference in New York on March 1. Given everything that has happened over the past year, there certainly will be a lot to talk about.

U.S. Army opposes Foley’s hockey team trademark

Bill Foley apparently had no issues when he came up with the name “Black Knight” for the mortgage technology company that was spun off from Fidelity National Financial Inc.

However, the Fidelity chairman is running into opposition with the name of his National Hockey League team, the Vegas Golden Knights.

The U.S. Army last week filed a notice of opposition with the U.S. Trademark and Patent Office, saying the name of the hockey team conflicts with the name of its parachute team, which is also called Golden Knights.

Foley is a graduate of the U.S. Military Academy at West Point, which calls its sports teams the Black Knights. He originally wanted to use that name for the hockey team.

The Army’s complaint does not say if the hockey team’s name should be changed, but does ask that the team’s trademark request for the name be refused.

Regency Centers projects increase in earnings

Regency Centers Corp. last week projected a slight increase in earnings for 2018 at an investor day presentation in New York.

The Jacksonville-based developer of grocery-anchored shopping centers expects core funds from operations to be $3.76 to $3.83 a share this year, up from $3.68 to $3.70 in 2017.

Funds from operations basically are earnings excluding noncash charges such as depreciation and amortization expenses, and are a key indicator of a real estate investment trust’s performance.

Analyst upgrades Landstar to ‘positive’

Susquehanna Financial analyst Bascome Majors last week upgraded Jacksonville-based Landstar System Inc. from “neutral” to “positive” as part of an overall favorable outlook for the trucking industry.

“Our recent conversations around truckload and intermodal demand and pricing expectations remain our most constructive since we began covering transports in 2008, and we enter 2018 with a favorable cyclical view toward the sector broadly,” Majors said in his report.

“We’re materially raising our logistics and trucking forecasts for persistent strength in volumes/pricing and our first cut at the EPS and cash flow impacts of tax reform.”

Majors sees a potential “9 percent upside to Street EPS estimates” for Landstar. He set a $124 price target for Landstar, with the stock trading at $104.70 at the time.

A second marijuana public company in town

Jacksonville is now home to two public companies seeking to capitalize on the movement to legalize marijuana use in the U.S.

A company called mCig Inc. moved its headquarters from Las Vegas to Jacksonville, according to its quarterly report filed with the Securities and Exchange Commission.

Its address is 4720 Salisbury Road, a Regus office-suite business center.

The report said mCig is “involved in the marijuana, cannabinoid (CBD), and electronic cigarette industries. It currently markets, sales, services, and distributes cannabis wholesale supplies, CBD products, software, and electronic cigarettes, vaporizers, and accessories internationally and in the United States.”

The company reported revenue of $5.2 million and net income of $957,910 for the six months ended Oct. 31.

Another Jacksonville-based company called Green Energy Enterprises Inc. has been looking for opportunities in the legal and medical marijuana business.

Green Energy operates a flight training school at Herlong Airport on Jacksonville’s Westside and was previously known as Quasar Aerospace Industries Inc., but it changed its name in 2015 to reflect its transition into the marijuana business.

Green Energy files its financial reports with the OTC Markets but hasn’t filed a quarterly report since the first quarter ended March 31.

That report showed revenue of $67,776 and a net loss of $7.4 million.

Jacksonville technology startup files for IPO

A Jacksonville technology start-up company filed with the SEC for an initial public offering through a direct offering, in which the company will not use underwriters but will try to sell shares directly to investors.

Webstar Technology Group Inc. intends to sell between 3 million and 20 million shares at $1 each.

The company licenses software including a retail mobile application and a business-to-business software solution for video streams.

Webstar is run by Joseph Stingone, a longtime executive with Prudential Insurance Company of America.

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