Interline Brands Inc.’s $1.1 billion buyout agreement gives the company’s board of directors 30 days to shop for a better offer. However, it doesn’t seem likely that it will find one.
The $25.50-a-share offer from GS Capital Partners LP, an affiliate of Goldman Sachs, and hedge fund P2 Capital Partners LLC is 42 percent higher than Interline’s closing price before the deal was announced.
“We believe the odds of a competing offer are low. While we acknowledge Interline’s value as a strategic acquisition, we don’t believe a competing bid is imminent given that the stock has been trading at current depressed levels for some time,” Robert W. Baird analyst David Manthey said in a research note.
“We view a higher bid from a strategic acquirer as unlikely, believing the company has been previously shopped without takers,” William Blair analyst Ryan Merkel said in his research note.
“This takeout does not surprise us as Interline has struggled to produce meaningful organic revenue growth and operating leverage for several years now. The realization of value by acquisition appears to be a smart move by Interline management,” Merkel said.
Since the stock was unlikely to reach $25.50 on its own without a takeover bid, most shareholders are probably happy with the deal.
Still, as is always the case when mergers are announced, law firms lined up to announce they are “investigating” Interline on behalf of shareholders. I stopped counting the number of announcements that crossed the wires last week when it reached double-digits.
While shareholder lawsuits are common after a merger agreement, they rarely have an impact. You may recall that there were eight shareholder lawsuits filed against Winn-Dixie Stores Inc. after it agreed to merge with Bi-Lo LLC, and those suits had no effect on that deal.
So it seems likely that the takeover by GS Capital and P2 Capital will be completed at the $25.50 price. Jacksonville-based Interline, which distributes maintenance, repair and operations products nationwide, expects to complete the deal in the third quarter.
RailAmerica also seeking offers
The Interline buyout announcement Tuesday came a week after another Jacksonville-based public company, RailAmerica Inc., said it has had “preliminary discussions” about a possible sale.
RailAmerica’s stock had already risen about 50 percent from its $14.89 price at the end of 2011 before the merger rumors started, and it reached a record high of $24.37 last week.
A Bloomberg News story last week speculated that shareholders could still receive about 30 percent more than that in a buyout.
Stifel Nicolaus analyst John Larkin isn’t so sure. He thinks the stock already is fully valued after the recent run up in the price.
“This leaves little room, in our view, for the customary takeover premium which might be needed in order to receive widespread shareholder approval of a whole company transaction,” Larkin said in a research note.
New York investment firm Fortress Investment Group controls 59.6 percent of RailAmerica’s stock, so it controls the company’s fate, but it does have to find a price that will satisfy the minority shareholders if it wants to sell the whole company.
Fortress acquired RailAmerica in 2007 and then took it public again in 2009, although it maintained its majority position in the stock.
It is common practice for buyout firms like Fortress to acquire companies and then sell them a few years later when they can get a good price and make a profit on their investment.
Larkin said a recent buyout deal for privately owned Patriot Rail, which he said is a similar company to RailAmerica (but smaller), might be influencing Fortress.
“It may have been an attractive valuation (although the actual valuation was not disclosed publicly), achieved in the Patriot Rail transaction, which served as the catalyst that accelerated Fortress’ efforts to seek a buyer for all or some of RailAmerica’s shares,” he said.
By the way, Fortress also owns another Jacksonville-based railroad company, Florida East Coast Holdings Corp. It wouldn’t be surprising to see Fortress launch an initial public offering of that company one of these days to cash in on its investment.
Mixed forecasts for EverBank
Now that EverBank Financial Corp. has completed its initial public offering, the company last week began receiving its analysts’ coverage, all from firms that participated as underwriters in the IPO.
According to Thomson Financial, three analysts have rated the Jacksonville-based banking firm at “hold” and two at “buy.”
Jefferson Harralson of Keefe, Bruyette & Woods had high praise for the company as he issued an “outperform” rating, the equivalent of a buy.
“We consider EverBank one of the best managed and fastest growing banks in the country,” he said in his report.
Although EverBank depends heavily on mortgage banking, Harralson noted that the company did well through the “mortgage catastrophe” that began in 2007.
“EverBank’s mortgage business model was exceptionally clean, and not only did it survive the cycle but thrived and took advantage of others’ weaknesses, as it significantly grew its book value with consistent profits and accretive acquisitions,” he said.
EverBank was one of 14 U.S. banks that were subject to a review by federal regulators of its mortgage practices in April 2011. Harralson said EverBank “seems to have no foreclosure-related issues.”
Five of the 14 banks have agreed to pay fines. Harralson said “given it had no foreclosure-related issues and that it has upgraded its servicing platform to the higher required standards, we are hopeful of no fine” for EverBank.
Harralson has a $14 price target for the stock, which went public last month at $10 a share. Credit Suisse analyst Craig Siegenthale values the shares at $12, so he has a “neutral” rating.
Still, Siegenthale said in his report that “we believe EverBank offers investors a means of gaining exposure to a low-cost national deposit/lending distribution platform, and a business model that will produce stronger revenue growth than peers.”
Analysts say wait-and-see on PSS
Two weeks after PSS World Medical Inc. announced a major realignment of its businesses to match a changing health care system, company officials met with analysts and investors to explain the moves.
A couple of analysts who attended the Investor Day meeting in New York before Memorial Day weekend said they remained hesitant about the company’s stock.
“The company’s new five-year (vs. prior three-year) plan is targeting revenue growth and EBITDA growth well ahead of where our (and we believe investor) expectations were heading into the Investor Day, targets that we believe could be challenging to achieve,” Barclays Capital analyst Lawrence Marsh said in his research report after the meeting.
“Our view? There is much to ‘show me’ and many assertive assumptions behind this ‘new’ plan, though we do believe that the company’s focus on higher growth, higher margin businesses remains logical,” Marsh said.
“While fiscal 2013 guidance generally aligns with our expectations and management’s new long-term goals are admirable and exciting (if realized), near-term performance is highly uncertain, given the large number of moving pieces,” Robert W. Baird analyst Eric Coldwell said in his report.
In addition to outlining growth plans, officials of the Jacksonville-based medical supply distributor also “provided a relatively frank assessment of what went wrong” with the company’s previous business model, Coldwell said.
Among the problems were that “PSS’s sales force, historically a competitive differentiator, was spread too thin and didn’t spend enough time selling,” he said.
Also, “corporate capabilities didn’t keep up with provider consolidation, particularly for health systems. Market challenges, such as health care reform, reimbursement pressures, and high unemployment, required bolder/nimbler response,” Coldwell said.
Thomson reports that five of the 10 analysts following PSS rate its stock as a “hold,” while three rate it as a “buy” and two rate it as “underperform.”
Stein Mart has big May sales jump
Stein Mart Inc. last week reported monthly data showing that its new sales strategy is paying off.
Total sales for the four weeks that ended May 26 rose 3.4 percent to $101.9 million and comparable-store sales rose 3.1 percent in the month.
The Jacksonville-based fashion retailer had 263 stores in operation at the end of May, compared with 261 a year earlier.
“We are pleased with the 3.1 percent increase in our comparable-store sales for May,” interim CEO Jay Stein said in a news release.
“It has been nearly six years since we had a monthly increase greater than this without the addition of a significant promotional event or impact from a calendar shift,” he said.
Stein Mart last fall embarked on a sales strategy to rely less on coupons to draw in customers and more on everyday low prices.
Landstar maintains forecast
After eight weeks of results, Landstar System Inc. CEO Henry Gerkens said he is maintaining the Jacksonville-based trucking company’s earnings forecast of 71 cents to 76 cents a share for the second quarter.
“Based on what we have seen so far, I remain very confident with that range,” Gerkens said in his regular midquarter conference call last week.
“The economy and operating environment is pretty much as forecasted and continues to move in a northerly direction, albeit in a slow and sometimes choppy pace,” he said.
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