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Jax Daily Record Monday, Jun. 29, 201512:00 PM EST

New strategy for Fidelity spinoff J. Alexander's

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by: Mark Basch Contributing Writer

As Fidelity National Financial Inc. prepares its next spinoff — J. Alexander’s Holdings Inc. — the restaurant company revealed a major shift in strategy in a filing with the Securities and Exchange Commission last week.

Fidelity currently owns 87.44 percent of J. Alexander’s Holdings, which has been operating two upscale restaurant chains: J. Alexander’s and Stoney River Steakhouse and Grill.

However, the SEC filing reveals the company created a third chain this year called Redlands Grill and is planning to convert nearly half of its J. Alexander’s restaurants into the new concept.

Redlands Grill offers “contemporary American” cuisine “including made-from-scratch flatbreads, sushi, and a strong emphasis on farm-to-table seasonal vegetables,” the SEC filing said.

Sushi may not fit your idea of “American” cuisine, but J. Alexander’s said it has been working on the concept for more than a year.

The company hasn’t made any major announcements about the new concept, but it quietly converted J. Alexander’s restaurants in Nashville and Birmingham to Redlands Grill in the first quarter this year and plans to convert another 10 to 13 of J. Alexander’s 29 remaining restaurants by the end of this year, the filing said. It does not say which locations will be converted.

One of those J. Alexander’s restaurants is at the St. Johns Town Center in Jacksonville.

J. Alexander’s Chief Financial Officer Mark Parkey said the company is not ready to announce which other locations will be converted to Redlands Grill. He did say the company plans to continue operating all three restaurant concepts.

The SEC filing said each of the three chains is expected to have “15 to 20 restaurants competing in the upscale casual dining segment of the restaurant industry.”

In addition to the 31 J. Alexander’s and Redlands Grill restaurants, the company has 10 Stoney River locations.

The company recorded sales of $56.2 million and earnings from continuing operations of $2.2 million in the first quarter this year, according to the SEC filing.

The spinoff of J. Alexander’s as a separate public company is the latest move by Fidelity to monetize its investments in companies outside of its main business of title insurance. Last month, it spun off mortgage technology and analytics company Black Knight Financial Services Inc. with an initial public offering, but Fidelity maintained a majority voting interest in Black Knight.

Fidelity will sever its ties with J. Alexander’s in the spinoff. Unlike Black Knight, which is headquartered at Fidelity’s Riverside Avenue office complex in Jacksonville, J. Alexander’s corporate headquarters is in Nashville.

The company’s investment in J. Alexander’s is held in its Fidelity National Financial Ventures subsidiary, which has a tracking stock that trades separately from Fidelity National Financial Inc.

Shareholders of FNFV will receive 0.16391 shares of J. Alexander’s Holdings for each FNFV share they own.

After the distribution, J. Alexander’s will be a publicly traded company with 87.44 percent of the shares held by public stockholders. The rest of the stock will be owned by private investors, including a 10.85 percent stake owned by the Newport Global Opportunities Fund.

J. Alexander’s shares are expected to trade on the New York Stock Exchange under the ticker symbol “JAX.”

Fidelity will still be in the restaurant business after shedding J. Alexander’s, owning a 55 percent stake in American Blue Ribbon Holdings.

That holding company owns the O’Charley’s, Village Inn, Baker’s Square, Max & Erma’s and Ninety Nine restaurant chains.

 

Fifth Third latest bank to cut back

It seems like every week we see another announcement of a bank cutting back its operations.

Last week, it was Fifth Third Bancorp announcing plans to close about 100 of its 1,303 branches in 12 states.

The Cincinnati-based company has 11 branches in the Jacksonville metropolitan area.

Fifth Third spokesman Larry Magnesen said the company is not ready to announce specific locations that will be closing, and it will not complete the process until mid-2016.

Fifth Third entered the Jacksonville market when it acquired the troubled R-G Crown Bank in 2007, which had nine branches in the area at the time.

The bank ranked 11th in market share in the Jacksonville area with $422 million in deposits at its 11 branches at midyear 2014, according to the latest Federal Deposit Insurance Corp. data available.

Many banks are looking at closing offices as more customers do business online and don’t need to visit brick-and-mortar locations.

“Consumer demographics and our customers’ preferred channels of banking are undergoing significant changes,” Fifth Third CEO Kevin Kabat said in a news release.

Fifth Third expects to save $60 million annually in operating expenses when it completes the branch closing process.

 

Analysts say Web.com back on track

After disappointing earnings sent its stock price plunging last year, at least two analysts believe Web.com Group Inc. has put its problems behind it and is back on track.

B. Riley & Co. analyst Sameet Sinha upgraded his rating on Jacksonville-based Web.com last week from “neutral” to “buy” and sharply increased his price target for the stock from $20 to $30.

“We believe execution/competitive issues in the second half of 2014 have been addressed and management is working on various product changes and partnerships to drive profitable growth,” Sinha said in his research report.

“This should result in significant free cash flow generation, which will be used to reduce its debt levels in the next two years, opening the door for share buyback and/or accretive acquisitions,” he said.

Sinha’s upgrade came three weeks after FBR Capital Markets hosted investor meetings with Web.com management. FBR analyst Samad Samana said in a report after those meeting that he also thinks Web.com, which provides website development services for businesses, is back on the right path.

“Overall, we believe the company’s execution has improved and investor sentiment has gotten, and should continue to get, better over time,” said Samana, who, reiterated his “outperform” rating.

“We expect better execution to result in returning to revenue growth, expanding margins, and double-digit EPS growth over time. As this unfolds, we expect multiple expansion and share price outperformance,” he said.

Web.com’s stock rose $1.26 to $23.81 Thursday after Sinha’s upgrade, but not everybody is optimistic about the stock.

Two days before Sinha’s upgrade, Citigroup analyst Walter Pritchard downgraded the stock from “buy” to “neutral.” The stock moved little after his downgrade Tuesday, falling 35 cents to $22.92.

Citigroup generally doesn’t provide its research reports to the media and Pritchard did not respond to an email request for his report.

 

Information Systems Associates reports loss

Information Systems Associates Inc. last week said its subsidiary, Duos Technologies Inc., recorded $1.1 million in revenue and an operating loss of $364,531 for the first quarter.

ISA acquired Jacksonville-based Duos at the beginning of the second quarter and moved its headquarters from Coral Springs to Jacksonville, as Duos became its main business. ISA’s previous financial reports did not include data for Duos.

Duos provides “intelligent security analytical technology solutions,” the company said.

ISA also said it has upgraded its stock listing from the so-called “Pink Sheets” to the OTCQB, which is the middle of three tiers for the OTC Markets group.

The company hopes that move will bring more visibility to the stock.

The stock has been priced near the 50-cent level recently.

 

Latitude 360 buying fantasy sports business

Latitude 360 Inc. last week announced an agreement to buy a fantasy sports company called Major League Fantasy that will allow customers to play fantasy sports games in its venues “for real money or just for fun,” the company said in a news release.

Jacksonville-based Latitude 360 operates restaurant and entertainment venues in Jacksonville, Pittsburgh and Indianapolis, and has announced plans to open venues in several more cities.

Latitude 360 said it agreed to pay $8.5 million in cash and stock to buy Major League Fantasy.

 

Winters’ fund buys CSX shares

An investor who previously took an activist position in another Jacksonville-based railroad company has taken a position in CSX Corp.

The Wintergreen Fund acquired 229,577 shares of CSX during the first quarter, according to a filing by the fund with the SEC.

That’s a minute stake in CSX, which averaged 991 million outstanding shares during the first quarter. But it is noteworthy because Wintergreen was founded by David Winters, who once was a very visible investor in Florida East Coast Industries Inc.

Before forming Wintergreen in 2005, Winters was president of Franklin Mutual Advisers LLC. That New Jersey investment firm was the largest stockholder of Florida East Coast before it was bought out by funds managed by Fortress Investment Group in 2007.

Wintergreen’s stake in CSX is too small to make an impact, but it will be interesting to see if Winters takes an active interest in CSX.

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