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Jax Daily Record Monday, Dec. 1, 201412:00 PM EST

Spinoffs are 'spinning out of control'

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by: Mark Basch Contributing Writer

Another company with a Jacksonville television operation is splitting in two.

Graham Holdings Co., which owns WJXT TV-4 and four other television stations, announced it is spinning off its cable television business into a separate public company.

This follows the August announcement by Gannett Co. Inc., which owns WTLV TV-12 and WJXX TV-25, that it is splitting up its television and newspaper publishing businesses into two separate public companies.

Of course, it’s not just media companies that are splitting up. As anyone who follows Jacksonville companies knows, we’ve been going through spinoff mania recently as Rayonier Inc. and Fidelity National Financial Inc. split up their businesses, and Patriot Transportation Holding Inc. works to complete its spinoff.

This trend goes well beyond Jacksonville, as Credit Suisse analysts Ron Graziano and Amit Varshney pointed out last week in a report titled “Spinning Out of Control.” They counted 50 companies that have announced or completed spinoff plans so far this year.

“In recent years, the search for yield by investors has resulted in companies deploying billions of dollars of excess cash to their shareholders in the form of dividends and buybacks. Spinoffs also are an attractive way for companies to reorganize their business and distribute capital to shareholders that is often tax free to the company and shareholders,” Graziano and Varshney said in their report.

They said spinoffs tend to be a cyclical trend and are now taking advantage of the stock market’s historical highs.

The analysts’ data shows that in the short term this year, the parent companies have generally done better than the companies that are spun off.

“The smaller spinoffs could be caught up in macro trends such as the underperformance of the small cap sector and overall recent market volatility,” they said.

Fidelity and Rayonier were two of the companies they used to illustrate that point. Using data through Oct. 24, Fidelity’s stock was up 7 percent since it announced its plan to create a separate tracking stock for its non-real estate-related businesses and up 10 percent since it completed the spinoff.

Meanwhile, the tracking stock, called FNFV, was down 23 percent since the companies completed the spinoff.

Rayonier was up 2 percent since announcing its plan to spin off its performance fibers business as a separate company but down 7 percent after completing the deal. The spinoff company, Rayonier Advanced Materials, was down 21 percent.

It got even worse for both Rayonier companies after Oct. 24, as they both released disappointing earnings reports.

Still, spinoffs are generally sound ideas for “good quality companies that are struggling to grow,” the analysts said.

“While the recent shareholder underperformance is an important short-term consideration, spin transactions generally create value for its shareholders over the long-term,” they said.

Graham Holdings has been going through a complete transformation since selling off its flagship newspaper, The Washington Post, last year. After spinning off its Cable ONE Inc. division as a separate company, it will be left mainly with its five television stations plus education company Kaplan, in addition to investments in other businesses.

“The separation will position Graham Holdings to pursue continued growth opportunities, while enabling Cable ONE to focus entirely on its video, Internet and voice services and to attract a more natural stockholder base,” Chairman Donald Graham said in a news release.

Latitude 360 reports loss

In its first full quarter since becoming a public company, Latitude 360 Inc. reported revenue of $3.7 million and an operating loss of $4.2 million for the third quarter.

Its quarterly report filed with the Securities and Exchange Commission did not provide any more detail about the results.

The company operates Latitude 360 restaurant and entertainment venues in Jacksonville, Pittsburgh and Indianapolis, with plans to open in three other cities in the coming months.

Jacksonville-based Latitude 360 also last week announced the hiring of Kenneth Adams as its chief financial officer. The company said Adams has 25 years of experience as a senior executive in the hospitality and restaurant industry.

CSX expects double-digit growth

CSX Corp. expects fourth earnings per share growth similar to its third-quarter growth of 13 percent and is confident about delivering double-digit growth in 2015, Chief Transportation Officer Cindy Sanborn said at a “RailTrends” conference in New York.

“As customer demand continues to rise, CSX network performance remains stable, with key indicators including on-time originations and arrivals holding steady in the fourth quarter as compared to the previous two quarters,” the company said in a news release.

With service levels becoming a major issue in the railroad industry, Jacksonville-based CSX last month began providing biweekly updates on its website about service issues.

“CSX is working to put the right people and resources in the right places, combined with process improvements and increased communication with our peers, to serve the broad-based growth we continue to see across nearly all markets that we serve,” Sanborn said at the conference, according to the news release.

Ranbaxy battles FDA again

Once again, Ranbaxy Laboratories Ltd. is fighting with the U.S. Food and Drug Administration.

The India-based pharmaceutical company, which has its U.S. sales and marketing office in Jacksonville, filed a lawsuit in federal court in Washington, D.C., after the FDA rescinded tentative approvals for two drugs. One is a generic version of AstraZeneca’s heartburn pill, Nexium, and the other is a generic version of Roche Holding’s antiviral drug, Valcyte.

Ranbaxy filed its complaint two weeks ago asking the court for a temporary restraining order to prevent the FDA from allowing competitors to manufacture those drugs, but it was denied.

“The Court has not granted a temporary restraining order to block FDA approval for other ANDAs (abbreviated new drug applications) for generic versions of Nexium and Valganciclovir,” Ranbaxy said in a statement filed Wednesday with the Bombay Stock Exchange.

The company said the court ordered the parties to agree on a schedule for filing additional legal briefs.

Ranbaxy has been under scrutiny from U.S. government agencies several times in recent years, including FDA inquiries over quality control concerns at its India manufacturing plants.

Ecolab a top performer

Ecolab Inc. isn’t well known, but it has been one of the best performing U.S. stocks over the last decade, according to a story published last week by Forbes magazine.

The Minnesota-based water, hygiene and energy technology and services company has been trading above $110 a share recently, more than quadruple its value at the beginning of 2004.

Ecolab reported total revenue rose 9 percent in the first nine months of this year to $10.6 billion, with earnings jumping 27 percent to $867 million, or $2.83 a share.

Ecolab made news in Jacksonville two weeks ago by applying to the City Council for up to $214,000 in tax breaks to expand its local operations.

The company operates an 88,000-square-foot facility near A.C. Skinner Parkway, where it employs 55 people, but wants to lease a 120,000-square-foot facility within the Tradeport Industrial Park. It would then add 35 jobs by the end of 2015.

Michaels beats forecasts

After a disappointing initial public offering five months ago, The Michaels Companies Inc.’s stock continues to move up with strong earnings reports.

The Texas-based arts and crafts retailer, which has a distribution center in Jacksonville, reported adjusted earnings rose 16 percent to $64 million, or 31 cents a share, for the third quarter ended Nov. 1. That was 5 cents a share higher than the average forecast of analysts, according to Thomson Financial.

Sales rose 1.1 percent to $1.13 billion, beating the average forecast of $1.09 billion.

Michaels went public on July 2 by selling 27.8 million shares at $17 each, at the low end of its hoped-for price range of $17 to $19. The stock then fell even more when trading began in the Nasdaq market, with the stock trading at a low of $14.51 in July.

However, the stock has been rising steadily since a strong second-quarter earnings report in late August. It reached a high of $24.29 Friday.

The company operates 1,166 Michaels stores and 121 Aaron Brothers stores.

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