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Treasury Secretary Jacob Lew
Jax Daily Record Monday, Sep. 29, 201412:00 PM EST

Treasury's anti-inversion rules could target Medtronic

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by: Mark Basch Contributing Writer

Medtronic Inc.’s stock dropped last week after the U.S. Treasury Department announced new corporate tax inversion rules that seemed to be targeting the company.

Medtronic in June announced a $42.9 billion merger agreement with Covidien PLC, with plans to move its corporate headquarters from Minneapolis to Covidien’s offices in Ireland after the two medical device makers complete the deal.

That move would allow Medtronic to pay corporate taxes at the lower Irish rate, a process known as an inversion. Medtronic is one of several U.S. companies this year to announce inversion strategies after merging with foreign companies, including Miami-based Burger King Worldwide Inc.’s plans to merge with Canada-based Tim Hortons Inc.

These deals have raised the ire of the Obama administration, which has urged Congress to pass legislation to prevent U.S. corporations from dodging taxes by merging with overseas companies.

However, with congressional action unlikely, Treasury Secretary Jacob Lew proposed new regulations to discourage inversions.

“While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem,” Lew said in a news release.

“These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether,” he said.

The rules include provisions to make it more difficult for U.S. corporations to access earnings from a foreign subsidiary without paying U.S. taxes on that money, after they move their headquarters overseas.

According to Bloomberg News, Medtronic has $13.9 billion in cash sitting outside the U.S., the most of eight companies that have inversion deals pending. That’s why Medtronic appeared to be a target of the regulations.

Medtronic’s stock fell as much as $2.67 to $63.31 Tuesday after the regulations were announced late on Monday.

Medtronic did not immediately say if these new rules will change its plans.

“We are studying Treasury’s actions. We will release our perspective on any potential impact on our pending acquisition of Covidien following our complete review,” the company said in a statement.

Even if Medtronic does go through with its plan to move its corporate headquarters to Ireland, the company plans to maintain its operational headquarters in Minneapolis.

Medtronic also has the headquarters for its surgical technologies division in Jacksonville, where it employs about 700 people. The company has not said if that operation would be affected by the merger.

Chesapeake Utilities providing power for Rayonier

Chesapeake Utilities Corp., a publicly traded power company based in Delaware, announced a plan last week to build a plant adjacent to Rayonier Advanced Materials Inc.’s Fernandina Beach facility that will provide power to Rayonier and to Amelia Island residents.

The $35.5 million plant, subject to various approvals, would be built on a site leased from Jacksonville-based Rayonier.

The natural gas-powered plant will provide electricity to Rayonier’s performance fibers plant in Fernandina Beach and also produce power for Florida Public Utilities Co., a Chesapeake subsidiary.

FPU, which was acquired by Chesapeake in 2009, provides electricity in Fernandina Beach and seven other Florida markets.

Rayonier currently operates boilers that power its Fernandina Beach plant and sells excess electricity to FPU.

“We’re proud to be part of a solution that offers additional operational flexibility to our plant while helping to provide reliable and cost-effective power to Amelia Island residents,” Rayonier Advanced Materials CEO Paul Boynton said in a news release issued by Chesapeake.

Chesapeake provides power in the Delaware, Maryland and Virginia markets, in addition to Florida. According to its annual report, 38 percent of its operating income is generated in Florida.

Body Central cuts 53 jobs

Body Central Corp. has cut 53 jobs at its Jacksonville headquarters since March, reducing the total to 150, according to a Securities and Exchange Commission filing last week.

The struggling fashion retailer has also reduced employment at its stores from 3,698 as of March 17 to 3,177 as of Aug. 26, as the company closed stores.

Body Central had 275 stores in 28 states at the end of the second quarter, down from 294 at the end of 2013.

Body Central had been planning to move its headquarters and distribution center from its current Southside location to a much larger facility at One Imeson Center in North Jacksonville, but the company canceled those plans in August as its losses piled up.

Body Central’s application for city and state incentives to support that move said the company would retain 145 permanent jobs and create 52 new jobs after it moved, so its headquarters employment is basically back to where it was before it started the process.

Last week’s SEC filing was a registration statement that will allow a group of new investors to sell their shares of Body Central. The investment group bought $18 million in notes in June that can be converted to shares of common stock. The registration statement would allow the investors to sell shares from time-to-time, although no specific sales are scheduled.

With its stock price trading below $1, Body Central recently executed a reverse stock split in which its shareholders received one share for every 10 they had previously owned. That has reduced the number of Body Central shares outstanding to 1.724 million, according to the filing.

The stock was priced at $3.50 immediately after the reverse split took effect on Sept. 9, but the price has fallen since to as low as $1.90 last week.

The shares currently trade on the OTC Pink marketplace under the ticker symbol “BODYD,” but the ticker symbol is scheduled to revert back to its original “BODY” ticker on or about Oct. 7.

St. Joe decides against Sears loan

The St. Joe Co. won’t be loaning money to Sears Holding Corp. after all.

A week after saying in an SEC filing that St. Joe was considering participating in a loan to Sears, Fairholme Capital Management LLC and its founder, Bruce Berkowitz, said in a follow-up filing Thursday that the company decided against it.

“The St. Joe Company was unable to agree on terms for such a participation in light of its investment criteria and has declined the opportunity to

participate,” Thursday’s filing said.

Berkowitz is St. Joe’s chairman. He said in the filing that Fairholme “and certain of their affiliates” may still participate in a loan to Sears.

Sears two weeks ago secured a $400 million loan from a group of investment firms, and St. Joe was considering up to $100 million in participations of that loan.

Analyst expects growth at FNF

Piper Jaffray analyst Jason Deleeuw last week initiated coverage of Fidelity National Financial Inc. (FNF) with an “overweight,” rating, while also issuing a “neutral” rating on Fidelity National Financial Ventures (FNFV).

Deleeuw said in his report that he expects growth from Black Knight Financial Services, FNF’s mortgage technology subsidiary.

“We see Black Knight delivering high-single digit organic revenue growth from cross-selling initiatives and a strong sales pipeline. We believe the recurring revenue and secular growth aspects of Black Knight will help drive multiple expansion for FNF shares,” he said.

Deleeuw also is optimistic about FNF’s core title insurance business.

“After seeing FNF’s strong second-quarter title margins, we believe that even modest home purchase origination growth can drive meaningful margin expansion for FNF going forward,” he said.

Deleeuw is more cautious on FNFV, the tracking stock created to represent the value of Fidelity’s investment in non-real estate-related companies.

“We expect investor returns to be driven by book value growth as investments are monetized for more than their current carrying value,” he said.

“However, the timing and the tax impact of monetization events remain uncertain, so we expect the shares to trade at a discount to our book value estimate,” he said.

Deleeuw set a target price of $16.50 for FNFV, which was trading at $14.69 when he issued his report. His target price for FNF, which was trading at $27.55, is $35.

Analyst rates EverBank at ‘outperform’

Wells Fargo Securities analyst Jared Shaw last week initiated coverage of Jacksonville-based EverBank Financial Corp. with an “outperform” rating.

“Pairing a retail Florida franchise with a national lending and deposit gathering model, EverBank has a differentiated business model that has proven nimble and flexible as it charts out expansion and growth opportunities. We believe that the growth potential and future operating leverage position the bank well and recommend the shares at these levels,” Shaw said in his report.

“Over the past two years, management has optimized and focused the business lines, and is executing on the core growth strategy,” he said.

Shaw has a valuation range of $21 to $23 for EverBank’s stock, which was trading at $18.50.

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