FNFV has become deal-making machine

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  • | 12:00 p.m. February 23, 2015
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With its wide array of apparently unrelated investments, Fidelity National Financial Ventures is an awfully hard stock to define and kind of difficult to understand.

About the only thing you can say for sure about FNFV, a tracking stock created last year by Fidelity National Financial Inc., is that it’s a deal-making machine.

When FNFV released its yearend earnings report last week, it wasn’t the numbers that grabbed your attention: It was the dizzying list of deals completed and in the works.

“We love doing transactions. We’re good at it,” Fidelity President Brent Bickett said during FNFV’s conference call with analysts.

“It’s in our blood,” he said.

FNFV isn’t an independent company but is a stock created to track the non-real-estate-related investments made by Fidelity. There are a lot of them, and the investment portfolio is constantly changing as the company continues to make deals.

During the fourth quarter, FNFV sold its stake in electronic payments company Comdata Inc. to FleetCor Technologies Inc. in exchange for FleetCor stock; distributed its remaining shares of auto-parts company Remy International to FNFV shareholders; and filed for an initial public offering of restaurant company J. Alexander’s Holdings Inc.

Since the end of the fourth quarter, FNVF completed the sale of 197,000 acres of timberland it owned in Oregon for $63 million.

With all of its deals, FNFV is now sitting on $210 million in cash and plans to use a “significant percentage” of that to buy back some of its stock through a bidding process known as a Dutch auction, Bickett said. He said the company will announce details of that soon.

FNFV also is changing its plans to make J. Alexander’s a separate public company. Instead of selling stock in an IPO, FNFV now plans to spin off J. Alexander’s and issue its stock to FNFV shareholders.

“After further review, we made the decision to slightly change course and pursue a direct spin-off of our interest in J. Alexander’s to FNFV shareholders,” Bickett said.

“We determined that J. Alexander’s has the financial resources and access to capital to pursue its strategic objectives without the dilutive effects of raising expensive IPO proceeds,” he said.

FNFV is always full of surprises. During the conference call, Fidelity Chairman Bill Foley revealed the company has an investment in a small water-purification business that’s tied to the fracking industry.

“That business is doing terrible right now,” Foley said, and he said Fidelity is unlikely to look at any other energy-related investments.

“I don’t believe that energy is going to be an option for us. We just don’t have the internal expertise,” he said.

As he admitted that deal-making is in the company’s blood, Bickett was almost apologetic to analysts for not having more deals in the works. He said the company is ready to move if something comes along, but right now there isn’t anything that looks good.

“We traffic in a lot of mergers and acquisitions and we see many opportunities but to be candid with you, we have not seen any real attractive net new opportunities in this marketplace,” Bickett said.

Fidelity committed to majority stake in Black Knight

Most of the deal-making under the Fidelity umbrella is handled by FNFV, but Fidelity National Financial Inc. has a big deal of its own in the works: an initial public offering of mortgage technology and analytics company Black Knight Financial Services Inc.

The Black Knight operations were mainly part of Lender Processing Services Inc., which Fidelity reacquired a year ago. Black Knight filed plans for an IPO in December, but Fidelity intends to retain voting control of the business.

Foley told the Daily Record in December it was “really dumb” for Fidelity to let LPS get away in the first place and during Fidelity’s conference call last week, he said Black Knight’s technology assets are too good to give up.

“It’s really important for us to retain that majority ownership” in Black Knight, he said.

Fidelity bought back LPS with investment firm Thomas H. Lee Partners, which now owns 35 percent of Black Knight. Foley said Thomas H. Lee will sell some of its Black Knight shares in the IPO, but Fidelity won’t be selling any of its shares. Most of the shares sold in the IPO will be newly issued shares.

Black Knight produced revenue of $220 million in the fourth quarter but Fidelity’s main business is title insurance, which grew revenue by 7 percent in the quarter to $1.47 billion.

Fidelity reported adjusted core earnings of 50 cents a share for the fourth quarter, up from 34 cents the previous year and 3 cents higher than the average forecast of analysts surveyed by Thomson Financial.

“This was a strong finish to a great year for our title insurance business,” Foley said.

Medtronic still mum on Jacksonville plans

Medtronic plc has begun the integration process after completing its merger with Covidien plc, but the medical device company is still not giving details on how the merger may affect its Jacksonville operations.

Medtronic officially moved its corporate headquarters to Covidien’s offices in Dublin, Ireland, but maintains its operational headquarters in Minneapolis. Medtronic has also had the headquarters of its surgical technologies division in Jacksonville, where it has employed about 700 people.

During its quarterly conference call last week, Medtronic CEO Omar Ishrak said the company has already begun the process of integrating Covidien’s operations with Medtronic’s, including finding ways to “optimize” costs.

“Specifically, we will target facility duplications, administrative redundancies, indirect cost and other back-office functions. We structured detailed cost-savings plans which we have already started implementing,” he said.

However, Medtronic spokesman Fernando Vivanco said he had no details on how the process might affect the Jacksonville operations.

Medtronic reported that revenue for its surgical technologies division grew by 8 percent to $418 million in the third quarter ended Jan. 23. Excluding the impact of foreign currency rates on international sales, revenue grew by 11 percent, it said.

Overall, Medtronic’s third-quarter revenue grew by 4 percent to $4.318 billion, or 8 percent adjusted for the currency impact. The Covidien deal was completed after the end of the third quarter.

Adjusted earnings for the quarter rose by 10 cents to $1.01 a share, 4 cents higher than the average forecast of analysts, according to Thomson Financial.

Medtronic’s stock jumped as much as $3.04 to a record high of $78.30 Tuesday after the earnings report.

PHH losses continue

PHH Corp. last week reported a loss for the fourth quarter and for all of 2014, and said it expects the losses to continue through the first half of this year.

The mortgage banking company is going through a reorganization after it sold off its fleet management business last year. PHH reported a core loss of 47 cents a share for the fourth quarter and $2.55 for the full year.

“As we’ve previously mentioned, until we’ve completed our re-engineering plans, we expect PHH to generate core losses,” CEO Glen Messina said in the company’s conference call last week.

“Assuming market conditions and interest rate levels experienced in the second half of 2014 persist, with the implementation of our re-engineering and growth initiatives, we anticipate reporting positive core earnings for the second half of 2015 excluding one-time items,” he said.

PHH is headquartered in Mount Laurel, N.J., and has a second mortgage operations center in Jacksonville.

The Daily Record reported last month that PHH’s Jacksonville offices at 5201 Gate Parkway have been listed for a possible sublease, but the company is continuing to recruit employees.

PHH cut about one-third of its Jacksonville workforce in 2013, leaving it with about 700 local employees.

The company has not responded to inquiries about its current employment level.

Most analysts rate Rayonier at ‘hold’

RBC Capital Markets analyst Paul Quinn last week downgraded his rating on Rayonier Inc. from “outperform” to “sector perform,” so nearly all analysts following the Jacksonville-based timber and real estate company now rate it at the equivalent of a “hold.”

Different firms use different terminologies but according to Thomson Financial, six of seven analysts following Rayonier rate it at “hold” and the other had an “underperform” rating.

“With the stock below our revised target, and potential for further headwinds for Asian log exports, we are moving to the sidelines,” Quinn said in his research note.

Rayonier said in its Feb. 12 earnings report that it expects demand for timber to increase in the Southeastern U.S. as housing markets improve, but reduced demand in China will hurt timber sales from its Northwest U.S. and New Zealand timberlands.

“While we applaud the steps Rayonier’s new management has taken to increase transparency and disclosure, the harvest profile constraints they have to manage limit earnings growth potential,” Quinn said.

Rayonier’s stock fell from $29.55 before the earnings report to $28.02 before Quinn downgraded his rating on Tuesday morning.

Vertical Research Partners analyst Chip Dillon maintained a “hold” rating on Rayonier after the earnings report but said he would consider raising it to “buy” if the stock falls to $25 or below. On the other hand, he might downgrade the stock to “sell” if it reaches the mid-$30s.

“We do note, however, that Rayonier would be worth close to $40/share in a takeout based on recent/current estimated land values,” Dillon said in his report.

Convergys earnings beat forecasts

Convergys Corp. last week reported adjusted fourth-quarter earnings from continuing operations doubled to 52 cents a share, 8 cents higher than the average analyst’s forecast, according to Thomson.

Convergys, which provides outsourced customer management services, also projected adjusted earnings of $1.65 to $1.75 for 2015, basically in line with the average analysts’ forecast of $1.70.

Fourth-quarter revenue grew by 45 percent to $764 million, due mainly to the company’s acquisition last year of Stream Global Services Inc. Convergys is projecting 2015 revenue of $2.97 billion to $3.05 billion, up from $2.86 billion in 2014.

General Employment reports 1st quarter loss

General Employment Enterprises Inc. last week reported a loss from operations of about $145,000 for the first quarter ended Dec. 31.

Revenue for the staffing company fell about 10 percent to $9.7 million. The company said the decline was due in part to the closing of two unprofitable offices in its light industrial contract services division. Also, it said revenue declined in its professional services division because of less experienced recruiters in place during the quarter.

Naperville, Ill.-based General Employment in December agreed to buy Jacksonville-based Scribe Solutions Inc. As part of that deal, Scribe Solutions Chairman and CEO Derek Dewan will become chairman and CEO of General Employment, but the company has not said if it will move its headquarters from Illinois to Jacksonville.

General Employment said it expects to close the scribe Solutions deal by March 31.

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