After deciding in August to seek potential buyout partners, PSS World Medical Inc.'s board of directors identified just two parties as likely suitors.
According to a preliminary proxy statement filed by PSS, one of those companies — which it did not identify — declined to bid, leaving only McKesson Corp. as a possible buyer.
After McKesson made its initial bid on Sept. 11, the board decided to negotiate exclusively with McKesson and not seek other bids because "McKesson was more likely than other third parties to be able to acquire the company in a timely manner on attractive terms given McKesson's familiarity with the company's business and perceived capacity to pay," the proxy said.
PSS agreed to a $2.1 billion buyout offer from San Francisco-based McKesson on Oct. 24.
PSS' proxy statement filed with the Securities and Exchange Commission tells the story of how the buyout deal came together.
It basically grew out of a plan announced in May by the Jacksonville-based medical supply distributor to realign its businesses. Just three months later, the board apparently had doubts that the plan called "Healthcare 2.0" would succeed in light of industry trends.
During a special telephonic meeting in early August, the board discussed concerns about "the ongoing consolidation of independent caregivers and the potentially negative implications of such consolidation on its ability to successfully implement its Healthcare 2.0 initiative."
During the board's regular meeting the following week, the directors decided to explore a sale and sought to contact McKesson and the unidentified "Company A."
"These two companies were selected by the board of directors based on several factors, including strategic fit with the company's businesses, their familiarity with the company's business, their perceived capacity to pay a higher value, including by virtue of their potential ability to achieve synergies from a combination with the company, and their ability to evaluate and consummate a transaction in a timely manner," the proxy said.
After consulting with investment banker Goldman Sachs, the board concluded "that there was a low likelihood that other parties might be interested in acquiring, or would be able to acquire, the company on terms more attractive than those that could be offered by McKesson or Company A."
Timeliness was an issue because PSS was already in talks to sell its skilled nursing facility division, and McKesson and Company A were two candidates to buy that business.
The directors also decided that it couldn't contact other potential buyers "without a material increase in the risk of a premature public disclosure of the process."
PSS Chief Executive Gary Corless contacted the CEOs of McKesson and Company A on Aug. 20, and buyout discussions began.
The lack of competing bids in a merger process often raises alarm bells, but analysts say PSS' board negotiated a very good price that likely couldn't be topped by any other bidder, so shareholders should be happy. McKesson agreed to pay $29 a share, which is a 34 percent premium to the stock's trading price before the buyout was announced.
McKesson originally indicated an interest in paying $25.50 to $27 a share on Sept. 11 and submitted a written proposal on Oct. 16 to pay $27.80, according to the proxy.
PSS countered with a proposal of $30 a share, and McKesson then agreed to increase the price to $29.
The proxy statement was filed for a special shareholders meeting to vote on the deal. The meeting date has not been set.
Medtronic reports flat earnings
Another company dealing with an evolving health care system, Medtronic Inc., last week reported adjusted earnings of 88 cents a share for the second quarter ended Oct. 26, basically unchanged from last year.
The Minneapolis-based medical device maker said revenue, after currency adjustments, rose 5 percent to $4.1 billion.
"Our second quarter performance reflects the results of our ongoing focus to deliver consistent and dependable growth in a changing health care environment," said CEO Omar Ishrak in a news release.
Medtronic's surgical technologies division, which is headquartered in Jacksonville, reported revenue rose 17 percent after currency adjustments to $344 million.
Flowers Foods could benefit from Hostess liquidation
The demise of Hostess Brands Inc. has been difficult news for its local workers and for consumers attached to its iconic brands. But a liquidation of Hostess could be a boon for Flowers Foods Inc.
Thomasville, Ga.-based Flowers has been seeking to grow its nationwide footprint after focusing mainly on the Southern U.S., and many analysts are speculating that Flowers will be interested in buying some of Hostess' brands and operations in a liquidation.
"The liquidation, and the likely elimination of the onerous union contracts, is a clear positive for Flowers as it stands to not only benefit from a potential improvement in category operating environment but also the opportunity to acquire Hostess' attractive assets and brands — albeit not the entire company," BMO Capital Markets analyst Amit Sharma said in a research note.
"Flowers' strong balance sheet, impressive acquisition track record, relatively small overlap with Hostess in key markets/segments, potential to quickly leverage its existing infrastructure in core markets, and a seasoned management team makes Flowers one of the most eligible acquirers for Hostess' assets and brands," he said.
Flowers currently receives 51 percent of its sales from the Southeast and Mid-South regions, while Hostess only gets 22 percent of sales there, Sharma said. An acquisition of Hostess assets would allow Flowers to expand in the Northeast and California markets, he said.
Flowers shareholders have already benefited from the speculation. Its stock has risen from $19.21 three weeks ago to a high of $24.04 last week.
A Flowers acquisition of Hostess assets probably wouldn't help the 128 employees at Hostess' Jacksonville bakery who lost their jobs when the company shut down. Flowers already operates a local bun and bread facility and it seems unlikely that it would operate two bakeries in Jacksonville.
A Flowers spokesman did not respond to phone and email messages seeking information about its Jacksonville bakery, but the company did say in 2008 that it employed 240 people.
Shoe Carnival drops on fourth-quarter forecast
Shoe Carnival Inc.'s stock dropped $2.58 to $20.44 Tuesday after projecting lower-than-expected fourth-quarter earnings.
The Indiana-based footwear chain, which is controlled by former Jacksonville Jaguars owner Wayne Weaver, reported earnings for the third quarter ended Oct. 27 rose by 8 cents to 60 cents a share, 2 cents higher than the average forecast of analysts surveyed by Thomson Financial.
Total sales in the quarter rose 13.4 percent to $244.4 million and comparable-store sales rose 6.2 percent. Comparable-store sales are a key indicator of a retailer's performance, measuring sales at stores that have been open for more than one year.
For the fourth quarter, Shoe Carnival is projecting earnings of 19 cents to 23 cents a share, which would be higher than fiscal 2011's fourth-quarter earnings of 16 cents.
The company also is projecting comparable-store sales to rise by 2 percent to 4 percent, reversing a 3 percent decrease the previous year.
However, the average analysts' earnings forecast for the quarter was 27 cents.
Shoe Carnival President and CEO Cliff Sifford expressed optimism overall about the holiday season.
"As we enter the fourth quarter, we believe Shoe Carnival is well positioned to capitalize on holiday sales, starting with Black Friday," Sifford said in a news release last Monday.
"We have increased our hours of operation and we believe we have positioned our 'door buster' promotions, giveaways and coupons to be exceptionally competitive," he said.
Sifford was just promoted to president and chief executive a month ago. Weaver remains in the non-executive role of Shoe Carnival's chairman and is the company's largest shareholder, controlling 24.5 percent of the stock.
Avondale Partners analyst Mark Montagna said the lower-than-expected earnings forecast comes down to the boot market.
"The surprisingly weak guidance is based on Shoe Carnival learning that boots are expected to be heavily promoted through Christmas at Macy's and Belk. Those steep promos will cause Shoe Carnival to promote steeper than it planned. This is likely to hinder comps and margins," Montagna said in a research report.
Montagna lowered his rating on Shoe Carnival's stock from "market outperform" to "market perform" and reduced his price target for the stock from $28 to $19.
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