Lawsuits typically follow merger contract

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  • | 12:00 p.m. September 8, 2014
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After Jacksonville-based Fortegra Financial Corp. announced a $218 million buyout agreement Aug. 12, it only took about three hours for the first law firm to issue a news release announcing an “investigation” into the deal.

Within 10 days, at least 24 more similar news releases crossed the wires.

It’s an entirely predictable trend. Announce a merger and there will be lawsuits filed saying the deal is unfair.

According to a study by Cornerstone Research, shareholder lawsuits were filed in 94 percent of all merger and acquisition deals valued at $100 million or more in 2013. That was the fourth straight year the percentage was more than 90 percent, up from just 44 percent in 2007.

Those deals attracted an average of five lawsuits each, Cornerstone said, but the suits were usually resolved before the deal was closed.

“None of the lawsuits in our data went to trial, and all judgments, including summary judgments or judgments on the pleadings, were granted to the defendants,” Cornerstone Senior Vice President Adel Turki said in a news release.

In a Wall Street Journal story when Cornerstone issued its report in the spring, Stanford Law School professor Robert Daines described the process as “Kabuki theater.”

“Everybody knows the moves,” he said.

With that in mind, it was highly unusual to see law firm Robbins Geller Rudman & Dowd LLP two weeks ago announce a settlement in a lawsuit filed nearly three years ago over Winn-Dixie Stores Inc.’s buyout by Bi-Lo LLC.

The shareholder lawsuits did nothing to stop the merger, which was completed in March 2012. However, the law firm has been attempting to get more money for Winn-Dixie stockholders, who received $9.50 in cash per share in the buyout.

The settlement agreement filed in Duval County Circuit Court creates a $9 million fund, paid by Bi-Lo, to make additional payments to shareholders.

Any former Winn-Dixie shareholder can stake a claim to their portion of the fund, but the total proceeds will be reduced by several million dollars for attorneys’ fees and other expenses.

The bottom line is, if all shareholders participate in the settlement, the fund will pay out a little more than 10 cents per Winn-Dixie share.

The agreement gives shareholders a second option to argue their case that they deserve more before an appraisal arbitrator, which could result in an additional payment of up to $3.50 a share. However, shareholders who choose the second option have to make a payment up front of $1 a share, which will be forfeited if the appraiser determines Winn-Dixie’s shares were actually worth less than $9.50.

It’s not much, but that’s as good a settlement as shareholders can usually hope for in a merger-related lawsuit.

Bi-Lo did not admit any wrongdoing but agreed to the settlement to “finally put to rest and terminate all of the claims” related to the merger, according to the settlement agreement.

Body Central enacts reverse split

Body Central Corp.’s 1-for-10 reverse stock split will go into effect at the opening of trading Tuesday, the company said last week. Shareholders are receiving one share of stock for every 10 they had owned, reducing the number of Body Central shares outstanding from about 17.2 million to 1.72 million.

The company originally announced it would go into effect last Friday, but corrected that in a late Friday announcement.

Body Central also said its ticker symbol will change to “BODYD” for 20 days after the split goes into effect, and then change back to its original “BODY” symbol.

The Jacksonville-based fashion retailer’s stock had been trading below $1 a share since March as losses piled up.

When the company released its second-quarter financial results in mid-August, showing a fifth straight quarterly loss, it didn’t talk with analysts and investors. Instead, the Jacksonville-based fashion retailer invited shareholders to submit questions by email and said it would respond with an open letter to shareholders.

Body Central provided the responses late on Friday afternoon before the Labor Day holiday weekend, but didn’t give much insight about when the company could return to profitability.

“The company will not provide earnings guidance in the near-term,” it said. “The immediate focus concentrates on efforts designed to return the company to positive free cash flow as soon as possible, and if this goal can be achieved, tailoring business processes designed to sustain and maximize this free cash flow.”

Body Central said it has increased markdowns in the third quarter to get rid of old inventory, which will reduce profit margins in the third quarter but position it for better margins in the fourth quarter.

Besides reducing inventory, the company also is making “a concerted effort to expand the breadth of the assortment and reduce the depth of duplicative merchandise,” it said.

The company said it is renewing its merchandise focus on categories such as “nightlife and club.” Body Central’s core customer has traditionally been women under 30 years old.

“These categories were previously the cornerstone of our niche position, and we intend to increase their prominence as we endeavor to reestablish our position in the marketplace,” it said.

“We acknowledge that mall traffic trends across the industry are weak, and we are not immune. However, we believe these actions will start to take hold in the third quarter and may begin to increase store transactions as early as fourth quarter of 2014, regardless of the traffic headwind.”

FIS agrees to buy Belgium-based company

Fidelity National Information Services Inc., or FIS, announced an acquisition last week that will expand its international payments processing business.

Jacksonville-based FIS, which provides technology services for financial institutions, agreed to buy Brussels-based Clear2Pay for 375 million euros. That translates into more than $480 million.

Clear2Pay provides technology services for payment processing.

“The payments domain is one of the fastest-growing segments within the financial services industry and is a strategic growth and investment area for FIS,” said FIS President Gary Norcross in a news release.

Clear2Pay employs about 1,200 people in 15 counties and according to American Banker newspaper, it had $116 million in revenue last year.

FIS expects to close the deal in the fourth quarter and said it should be neutral to earnings per share for 2014. However, in a research note, Robert W. Baird analyst David Koning estimates the deal will add 2 cents to 3 cents annually to earnings per share.

Koning has a “neutral” rating on FIS’ stock and said “we continue to view risk/reward as balanced, though we are warming a bit as we consider second-half revenue growth acceleration to be likely.”

Gerkens optimistic about Landstar business trends

Landstar System Inc. Chief Executive Henry Gerkens last week said he remains “very optimistic” about the Jacksonville-based trucking company’s business.

In his mid-quarter conference call update, Gerkens said based on revenue trends in the first two months of the third quarter, “right now I see no change in the positive momentum or direction we have generated.”

He said revenue in the two-month period was more than 20 percent higher than in the same period last year, and he is “very comfortable” with analysts’ estimates of third-quarter earnings between 78 cents and 82 cents a share.

Landstar earned 62 cents a share in the third quarter of 2013.

“The key to our success continues to be execution and Landstar’s ability to attract and retain the necessary capacity to haul customer’s freight in an environment where capacity availability is extremely tight and in an environment of improving economic conditions,” Gerkens said.

He also expressed confidence that Landstar will achieve its goal of $3 billion in revenue for the full year.

Landstar’s stock rose $2.13 to $70.11 Thursday after Gerkens’ report.

Shoe Carnival stock drops on earnings outlook

Shoe Carnival Inc. last week reported earnings of 13 cents a share for the second quarter ended Aug. 2, down from 29 cents last year but within the company’s forecast range of 12 cents to 16 cents a share.

However, the footwear chain controlled by former Jacksonville Jaguars owner Wayne Weaver also forecast third-quarter earnings of 45 cents to 51 cents a share, down from 54 cents last year. The average analysts’ forecast had been 59 cents, according to Thomson Financial.

Shoe Carnival’s stock opened $2.16 lower on Thursday at $20 after the late Wednesday report, and closed Thursday at $19.85

The company reported total sales in the quarter rose 2.6 percent to $222.1 million, but comparable-store sales (sales at stores open for more than one year) dropped 2.1 percent.

Shoe Carnival CEO Cliff Sifford said in a news release that comparable-store sales did turn positive in July as customers began their back-to-school shopping. The company is forecasting comparable-store sales – a key indicator of a retailer’s performance – to be anywhere from 1 percent higher to 1 percent lower in the third quarter.

“Given our customers’ recent purchasing habits, we believe it is prudent to have a conservative outlook for the third quarter. We are incrementally more positive on the fourth quarter based on the anticipation of a strong boot season and we are well positioned with the right product assortment to take every advantage of improved consumer demand,” Sifford said.

“Shoe Carnival management is making the right moves to navigate through a choppy midtier customer environment,” Sterne, Agee & Leach analyst Sam Poser said in a research note.

“Guidance appears reasonable, as it assumes a deceleration for the balance of the quarter. Through an improved mix (women’s fashion), increased efficiencies, and a broader footprint, Shoe Carnival will meet or exceed expectations over time,” said Poser, who maintains a “buy” rating on the stock.

Weaver is chairman of Shoe Carnival and its largest shareholder. He and his wife, Delores, control 24.2 percent of the stock.

Stein Mart sales rise in August

Stein Mart Inc. last week reported total sales for the four weeks ended Aug. 30 rose 3.8 percent to $86.5 million and comparable-store sales rose 2.5 percent.

The Jacksonville-based fashion retailer operated 265 stores at the end of August, up from 260 at the end of August 2013.

Latitude 360 increases sales

Latitude 360 Inc. last week said that same-store sales for July and August combined were 7.7 percent higher than last year.

The newly public Jacksonville-based company operated the same three restaurant and entertainment venues in Jacksonville, Pittsburgh and Indianapolis as it did in the year-earlier period, so total sales at the venues should be the same as comparable-store sales. The company did not give specific sales figures.

Latitude 360 plans to open a fourth venue in Albany, N.Y., next month and a fifth in the Minneapolis area early next year.

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