Rayonier AM benefits from higher Tembec price

Montreal-based company’s shareholders approve deals.
By: 
Jul. 31, 2017

Rayonier Advanced Materials Inc.’s stock jumped higher last Monday after the Jacksonville-based company was forced to raise its price to buy Tembec Inc.

Why is paying more money good for Rayonier AM? Well, it’s because the merger is considered a very good strategic move for the company, regardless of how much it has to pay. Investors just want to see the deal get done.

“We believe that Rayonier AM made the right choice by improving its offer,” Vertical Research Partners analyst Chip Dillon said in a research note as he raised his rating on the company from “hold” to “buy.”

“The deal made sense for Rayonier AM even at a significantly higher price due to the significant transaction accretion, the diversification benefit to Rayonier AM, as well as Rayonier AM’s stock price that allowed for a better offer with more moderate dilution,” he said.

Rayonier AM is expected to benefit by combining with Montreal-based Tembec because the two companies produce very different products within the cellulose fibers industry, and the diversification makes Rayonier AM more attractive to investors.

Rayonier AM agreed in May to pay either $4.05 in cash or issue 0.2302 shares of its stock for every Tembec share, a deal valued at $807 million.

However, two large Tembec shareholders said the offer was too low and pledged to vote against it at Tembec’s special meeting Thursday, which would have killed the deal.

That prompted Rayonier AM a week ago to increase the offer to either $4.75 in cash or 0.2542 shares of stock. The two large shareholders agreed to that price.

Tembec said Thursday the new agreement was approved by 95 percent of shares voted at the meeting.

The companies did not announce the total value of the revised deal but Dillon estimates it at $925 million.

D.A. Davidson analyst Steven Chercover estimates it at $867 million. Chercover, who maintains a “buy” rating on Rayonier AM, said in a research note he believed the original offer was fair but it was good to put the shareholder battle to rest.

“Recently shares of Rayonier AM have given back some of the gains that occurred directly after the original merger announcement.”

“In our opinion, the recent weakness has been primarily attributable to concerns about the deal going through, and with the most outspoken shareholders against the deal now satisfied, we believe people can again turn their attention to the potential accretion from the combined companies,” he said.

Rayonier AM’s stock rose as much as $2.32 to $16.92 last Monday after the new agreement was announced late the previous night.

The two companies still need several regulatory approvals before completing the deal. Rayonier AM said in a Securities and Exchange Commission filing last week that the deal will not close before Oct. 16.

Landstar investors want more

Landstar System Inc. reported second-quarter earnings at the top of its forecast range and predicted third-quarter earnings in line with analysts’ expectations, but its stock still fell sharply Thursday after the report.

Apparently, Wall Street was hoping Landstar would forecast third-quarter earnings better than their expectations.

The Jacksonville-based trucking company’s earnings of 89 cents a share were 13 cents higher than the second quarter of 2016 and at the high end of its forecast of 84 cents to 89 cents.

“The momentum in demand for our service that began in the fourth quarter of 2016 continued and strengthened through the first half of 2017. The strong demand, combined with the long-awaited increase in rates, contributed to the very strong second-quarter results,” CEO Jim Gattoni said in Landstar’s conference call with analysts.

Landstar forecasts third-quarter revenue will be “similar” to the second quarter’s $870 million, which would be slightly above the average analysts’ forecast of $860 million, according to Yahoo Finance.

The company predicts third-quarter earnings of 88 cents to 93 cents, in line with analysts’ forecasts, which ranged from 87 cents to 95 cents.

However, Gattoni said Landstar is seeing normal seasonal trends so far in the third quarter, and that seemed to be a disappointment.

“Our sense is Landstar’s commentary toward seeing normal seasonality into 3Q in their heavily transactional business disappointed more bullish investor expectations (including ours after raising estimates a few weeks ago), which viewed the company as best positioned to benefit from a truckload spot market that tightened materially into 2Q’s end,” Susquehanna Financial Group analyst Bascome Majors wrote in a research note.

Questions from analysts during the conference call indicated other trucking companies were seeing improvement beyond “normal” trends, and they expected to hear something similar from Landstar.

Landstar’s stock, which was trading near record-high levels before the earnings report, dropped $7.55 to $81.60 Thursday.

Driver market affects Patriot

Patriot Transportation Holding Inc. reported lower earnings for its third quarter ended June 30, and the Jacksonville-based trucking company said driver shortages are making it difficult to attract new business.

Patriot reported net income of 14 cents a share, down from 42 cents the previous year, with revenue falling about 10 percent to $28.1 million.

The company said, as it did the previous quarter, that it has lost some business because of its unwillingness to lower rates to match its competitors.

It also said a shortage of qualified drivers is making it difficult to compete for new business in certain markets.

“Management has dealt with business loss in the past and while we have had some success adding new business recently, the difficult driver hiring and retention market certainly made it more difficult and it will take longer for us to recover,” CEO Robert Sandlin said in Patriot’s conference call.

Sandlin said Patriot is working to recruit new drivers through programs including increased pay and vacation days.

Landstar, of course, operates very differently than Patriot. Instead of hiring drivers, Landstar contracts with drivers who own their own trucks to transport loads.

Gattoni said in Landstar’s conference call the company saw “elevated” turnover in drivers during the second quarter and ended it with 9,404 trucks provided by driver-owners, 34 more than at the end of the first quarter but 58 lower than the end of the 2016 second quarter.

Ameris Bancorp continues resolving regulatory issues

Ameris Bancorp had hoped to be back in the merger and acquisition business by now, but a consent order from banking regulators that was expected to be lifted June 30 remains in effect.

The Moultrie, Georgia-based bank, which has its executive offices in Jacksonville, has been operating under the consent order because of violations of the Bank Secrecy Act, a federal law requiring financial institutions to help the government prevent money laundering. Ameris has said the violations were caused by software issues that it was working to resolve.

During the company’s quarterly conference call July 21, CEO Edwin Hortman said the completion of the regulatory review has been extended beyond its target date of June 30 to sometime in August.

Hortman said the company has been “sparing no expense” to resolve the problem.

“I’m very confident in our systems and the progress we’ve made in our program and then what I believe will be the outcome of our exam,” he said.

The consent order has prevented Ameris from pursuing new acquisition opportunities.

“On the M&A front, we’re continuing to have more serious discussions with management teams and boards of potential acquisitions and we’re ready to participate again in M&A once we exit the order,” Hortman said.

Ameris reported second-quarter adjusted earnings of 63 cents a share, up from 58 cents last year.

ACFC earnings edge lower

Jacksonville-based Atlantic Coast Financial Corp. reported second-quarter earnings of 8 cents a share, a penny lower than the second quarter of 2016.

The parent company of Atlantic Coast Bank’s net interest margin improved during the quarter. However, non-interest income declined due to lower gains on the sale of loans from a U.S. Department of Agriculture program.

Fidelity buys real estate tech firm

Fidelity National Financial Inc. last week said it acquired Real Geeks, a company that offers a customer relationship management platform and other technology for real estate professionals.

The Jacksonville-based title insurance company said Real Geeks complements another real estate technology firm it recently acquired called Commissions Inc.

Terms of the Real Geeks deal were not announced.

mbasch@jaxdailyrecord.com