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Basch Report
Jax Daily Record Monday, Oct. 2, 201706:50 AM EST

Fidelity deal for J. Alexander’s restaurant faces challenge

Fund manager Mario Cibelli says it’s unfair.
by: Mark Basch Contributing Writer

A well-known hedge fund manager last week voiced his opposition to a complex restaurant deal involving Jacksonville-based Fidelity National Financial Inc.

Mario Cibelli, managing member of Marathon Partners Equity Management, called for an independent investment banker to review a deal announced in August in which J. Alexander’s Holdings Inc. would buy the 99 Restaurant & Pub chain from Fidelity’s investment subsidiary.

Separately from the restaurant deal, Fidelity is working to spin off the investment subsidiary into an independent public company called Cannae Holdings Inc. 

Under the terms of the restaurant deal, Cannae would get J. Alexander’s stock in exchange for 99 and end up as the majority owner of J. Alexander’s with 52.5 percent of the stock.

Cibelli, whose firm owns 6.3 percent of J. Alexander’s stock, sent a letter to the restaurant company’s board criticizing the deal because of J. Alexander’s close ties to Fidelity (FNF).

“We believe the proposed transaction is overly accommodating to the interests of FNF and other affiliated entities and clearly not in the best interests of J. Alexander’s shareholders,” the letter said.

Fidelity is mainly a title insurance company but has invested in numerous nontitle businesses over the years, including several restaurant chains. It previously owned J. Alexander’s but spun that off as a separate company in 2015.

Fidelity continues to own a 55 percent stake in a company called American Blue Ribbon Holdings, which owns 99 and three other chains: O’Charley’s, Village Inn and Bakers Square.

American Blue Ribbon will be part of Cannae when it is spun off as a separate company.

J. Alexander’s reported sales of $118 million in the first half of this year. In addition to J. Alexander’s, the Nashville-based company operates three other chains: Redlands Grill, Stoney River Steakhouse and Grill and Lyndhurst Grill.

The Cannae spinoff was expected to be completed by the end of the third quarter, but Fidelity still has not scheduled a special shareholders meeting to vote on it and no date has been announced.

In his letter to J. Alexander’s six-member board, Cibelli complained that all of the directors have some tie to Fidelity or companies affiliated with Fidelity. The board includes Fidelity CEO Randy Quirk.

“We are highly concerned the board’s deep and active ties to FNF are hindering the pursuit of alternative options that could potentially result in better outcomes for shareholders,” he said.

“The proposed transaction seeks to re-establish FNF’s control of J. Alexander’s in a manner that is inconsistent with good corporate governance and substantially unfair to the shareholders. The liquidity needs of FNF and its affiliated entities, if any, have absolutely no place in the J. Alexander’s boardroom,” he said.

Cibelli said the proposed deal undervalues J. Alexander’s, and that he doesn’t see a strategic rationale for the deal because J. Alexander’s and 99 are contrasting dining concepts. 

“In our view, engaging and properly incentivizing an investment banker with no ties to FNF to conduct a formal auction process of J. Alexander’s would produce a materially better result than that which you as directors and fiduciaries have negotiated on behalf of shareholders,” he said.

Neither Fidelity nor J. Alexander’s issued a public response to Cibelli’s letter.

J. Alexander’s has said it wants to close the 99 deal before the end of the year, but it has not scheduled a shareholders meeting to seek approval.

FRP: Still too soon for REIT decision

FRP Holdings Inc. has been waiting for any changes in federal tax policy before deciding whether to convert to a real estate investment trust, or REIT.

While President Donald Trump unveiled his tax reform proposal last week, it wasn’t enough to bring the Jacksonville-based commercial real estate developer to a decision on a possible REIT status.

Trump called for reducing the corporate income tax rate to 20 percent, but at an investor conference the next day, FRP CEO John Baker said it is too soon to know what the final outcome of tax legislation will be.

“Clearly, there’s no predicting Washington these days and none of us think we’re smart enough to do that, so we’ll probably delay the decision to go to a REIT until next year,” Baker said Thursday at the conference in New York held by Sidoti & Co., which was broadcast over the internet.

FRP currently is classified as a C Corporation, meaning it is subject to regular corporate taxes. REITs are real estate investment companies which pass on their earnings directly to shareholders as dividends, so they don’t pay corporate income taxes on the earnings.

Baker said when converting to a REIT, a company has to distribute all of its retained earnings from previous years to shareholders. That would mean FRP would have to pay out $120 million in dividends.

“Luckily, a large portion of this will be in stock dividends, so it really doesn’t affect the balance sheet of the company,” he said.

Baker said FRP anticipates paying 20 percent in cash, about $24 million, with the rest distributed as shares of stock, if it does convert.

However, if the corporate tax rate is reduced, FRP may not see the need to become a REIT.

“At 20 percent, I think we would rather stay a C Corp and have the flexibility that comes with that,” Baker said.

TapImmune names Hoang new CEO

Peter Hoang

TapImmune Inc. last week appointed Peter Hoang its new president and chief executive officer.

Hoang has experience in investment banking and pharmaceutical research companies. TapImmune has several immunotherapies under development and trial to treat women’s cancers.

Hoang was most recently senior vice president of business development and strategy at Bellicum Pharmaceuticals and was previously managing director of innovations at the University of Texas MD Anderson Cancer Center.

Former CEO Glynn Wilson remains chairman of the board and also will serve as the company’s strategic adviser.

Wilson moved TapImmune’s small headquarters office from Seattle to Jacksonville two years ago after the company received a government grant to move forward with a clinical trial of a breast cancer treatment at Mayo Clinic Jacksonville.

“Peter joins us with an extraordinary background that combines capital markets, oncology, and executive management experience. We are confident that his ability and vision will lead us through the next phases of our clinical and corporate development and will enhance the value of the company,” Wilson said in a news release.

Landstar expands in Mexico

Jacksonville-based trucking company Landstar System Inc. said it opened a facility in Mexico City to expand its freight and logistics services in Mexico.

Landstar said it has been providing freight services into Mexico for more than two decades, and in January it opened a U.S./Mexico logistics service center in Laredo, Texas.

The company moved into Mexico City after acquiring assets from a privately held Mexican company called Metro Logistics. Terms of that deal were not announced.

“Opening a location in Mexico enables Landstar to seamlessly serve the needs of our customers throughout North America,” Landstar Executive Vice President Eric Meyer said in a news release.

Availity gets new investment

Availity, a Jacksonville-based health care information technology firm, said private equity firm Francisco Partners made a “significant” equity investment in the company.

Availity did not announce the size of the investment in its news release Tuesday.

The company’s other investors include health insurers Florida Blue, Anthem and Humana.

In addition to the equity investment, Availity said it secured a new $200 million revolving credit facility “to develop and acquire high-quality assets.”

Availity in April received City Council approval for $1.875 million in incentives to move its headquarters to the Town Center One building under construction at 5555 Gate Parkway. It is currently headquartered at another Southside office building at 10752 Deerwood Park Blvd. S.

The company employs about 350 people in Jacksonville and said in its incentives application it will add 250 positions by 2021.


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