Sale of Winn-Dixie parent inevitable; who are the suitors?

Southeastern Grocers is owned by a group of investment funds.

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  • | 12:00 a.m. December 2, 2022
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From the day Southeastern Grocers Inc. emerged out of Chapter 11 bankruptcy in 2018, a sale of the Jacksonville-based supermarket company seemed inevitable.

The operator of the Winn-Dixie, Harveys and Fresco y Más chains has been owned by a group of investment funds, which received stock in exchange for unsecured debt in the bankruptcy reorganization.

Those firms led by Fidelity Investments seemed unlikely to run the business for the long term, so it was no surprise when The Wall Street Journal reported Nov. 18 that Southeastern Grocers is talking to potential buyers.

The only question is, who could it be?

Few big supermarket operators are in a position to buy Southeastern, which had about 420 stores in five states and sales of $9.6 billion when it filed for an initial public offering in 2020.

The IPO was canceled in January 2021 and with a volatile stock market for the past year, Southeastern’s owners haven’t revisited the stock sale option to cash out of their investment.

Southeastern could be an attractive target for another supermarket operator because of its concentration in Florida, where 320 of its 420 stores were located at the time of the IPO filing.

The company most often mentioned as a potential buyer for Southeastern is Kroger Co., which announced a $20 billion acquisition of Albertsons Companies Inc. in October.

Those companies, the two largest U.S. supermarket operators, have about 5,000 stores combined across the country under several brands. But a map of the store footprint in their investment presentation shows a gaping hole in Florida.

The only Florida supermarket is a Harris Teeter in Fernandina Beach operated by Kroger. It’s so far north in the state that you might not even notice the Florida dot on that map.

Kroger showed its interest in the state last year by launching a grocery delivery service in Jacksonville and other Florida markets, without opening brick-and-mortar stores.

Albertsons was in Florida but it sold off its seven Jacksonville stores in 2005 and the last of its Florida stores in 2016.

While Florida may be appealing to Kroger, it will have its hands full with the Albertsons deal for the next year and likely isn’t in a position to take on another big acquisition.

The Kroger-Albertsons deal isn’t scheduled to close until 2024 and the companies will have to divest stores to gain antitrust approval for the merger.

The other big supermarket company that could be in a position to buy Southeastern is Ahold Delhaize, the third-largest with more than 2,000 U.S. stores under several brands.

Its biggest brand is Food Lion, with about 1,100 stores in 10 states. However, its predecessor company decided in 2012 to discontinue Food Lion in Florida, closing 113 stores, including 20 in Jacksonville.

Ahold Delhaize doesn’t have any brands operating in Southeastern’s market of Florida, Georgia, Alabama, Mississippi and Louisiana. If the Netherlands-based company has renewed interest in those zones, Southeastern would be a perfect fit.

Publix Super Markets Inc. is the fourth-largest U.S. supermarket chain, according to Progressive Grocer magazine, and is a direct competitor with Southeastern.

The next two largest companies are not a good geographic fit for Southeastern. H-E-B Grocery Co. is mainly in Texas and Meijer Inc. operates in the Midwest.

The Wall Street Journal story, which cited unnamed “people familiar with the matter,” did not indicate who is talking to Southeastern. A private equity buyer is also a possibility.

Speculation about buyers for Winn-Dixie has been ongoing for decades and until a deal is revealed, you can expect speculation to continue.

Fidelity annuity and life spinoff begins trading on NYSE

Fidelity National Financial Inc.’s latest spinoff begins trading Dec. 1 on the New York Stock Exchange.

The Jacksonville-based title insurance company announced plans in March to spin off 15% of its F&G Annuities & Life Inc. subsidiary, with Fidelity retaining control of the business with an 85% stake.

Fidelity is distributing 68 shares of F&G to its stockholders for every 1,000 Fidelity shares they own.

Fidelity acquired the annuities and life insurance company for $2.7 billion in June 2020. The company said F&G is performing well but the market was not recognizing the value, so the spinoff is intended to create additional value for Fidelity’s stock.

F&G, based in Des Moines, Iowa, reported revenue of $1.7 billion and earnings of $581 million in the first nine months of 2022.

The stock will trade under the ticker symbol “FG.”

F&G will be the fourth publicly traded company that was a subsidiary of Fidelity. The biggest is financial technology company Fidelity National Information Services Inc., or FIS, which was spun off from Fidelity in 2006 and is a Fortune 500 company on its own, like Fidelity.

Mortgage technology company Black Knight Inc. was spun off in 2015 but has agreed to an acquisition by Intercontinental Exchange Inc.

Investment company Cannae Holdings Inc. was spun off from Fidelity in 2017.

FIS and Black Knight are headquartered in Jacksonville but Cannae’s offices are in Las Vegas.

Original investor exits Cadre Holdings

One of Cadre Holdings Inc.’s original investors said it exited its investment after making a big profit from the Jacksonville-based maker of safety and survival products.

Palm Beach Capital Fund III L.P. said Nov. 21 it realized proceeds equal to 9.3 times the capital it invested in Cadre in 2012.

Cadre was part of Jacksonville-based Armor Holdings Inc., which was acquired by BAE Systems PLC for $4.5 billion in 2007.

Former Armor CEO Warren Kanders led an investment group including Palm Beach Capital that bought the Cadre business back from BAE in 2012.

Cadre went public in November 2021. Its SEC filings said Palm Beach Capital owned 8.3% of the stock before the IPO.

“We are very proud of the Company’s growth during our investment period,” Palm Beach Capital Managing Partner Nate Ward said in a news release.

Medtronic ENT division reports strong sales growth

Medtronic plc reported slower-than-expected revenue growth in its second quarter ended Oct. 28.

But the Ireland-based medical device company’s Jacksonville division, which makes surgical instruments for ear, nose and throat physicians, outperformed the rest of the company.

Medtronic’s total revenue rose 2% organically (excluding the impact of foreign currency translation and acquisitions) to $7.6 billion.

The company does not break out data for the ENT division but said its revenue grew by a high-teen percentage in the quarter.

For the entire company, “the miss was primarily split evenly between two challenges,” CEO Geoff Martha said in Medtronic’s Nov. 22 conference call, according to a company transcript.

“One, procedure volumes in some markets have been slower to return to normal levels. And two, some of our supply challenges have persisted longer than we anticipated,” he said.

Medtronic is projecting revenue growth to pick up in the second half of its fiscal year.

Adjusted earnings fell by 2 cents in the second quarter to $1.30 a share.

Analyst downgrades Regency Centers and other REITs

Evercore ISI analyst Steve Sakwa downgraded his rating on Regency Centers Corp. and several of its peers after a National Association of Real Estate Investment Trusts conference.

Sakwa downgraded Jacksonville-based Regency from “outperform” to “In Line” based on “pure valuation,” according to his Nov. 21 research report.

Sakwa issued the same downgrade for Kimco Realty Corp., Four Corners Property Trust and Welltower Inc.

“The recent outperformance by these four stocks provides less upside looking forward and the relative attractiveness has diminished within our coverage universe,” he said.

Leasing activity has been strong for shopping center REITs like Regency, Sakwa said.

“At the conference, management teams highlighted the robust leasing environment including record volumes of leases that have been signed due to the lack of supply,” he said.

“Interest among anchors and shops continue to be solid but that can also quickly change based on economic and market conditions.”

SG Blocks concerned about stock ‘irregularities’

For the second time this year, Jacksonville-based SG Blocks Inc. publicly expressed concerns about trading activity in its stock.

The company said in a Nov. 23 news release it “has contacted the appropriate regulatory agencies regarding what the Company believes to be irregularities in the trading of its common stock as well as reported stock ownership.”

“The Company remains committed to providing maximum value to its shareholders and working to ensure that the market is fair for all participants,” it said, without giving further details.

CEO Paul Galvin sent a letter to shareholders in July saying the stock price “has decreased and is being held down due to unusual options activity.”

SG Blocks, which converts shipping containers for use as buildings, was trading at $1.48 when it issued the latest release, about $1 below its peak for the year in April.