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Basch Report
Jax Daily Record Monday, Apr. 2, 201806:30 AM EST

Who will own Southeastern Grocers?

When Winn-Dixie parent emerges from bankruptcy it’s unclear who will hold its stock.
by: Mark Basch Contributing Writer

One big mystery remains after Southeastern Grocers LLC filed its prepackaged Chapter 11 bank-ruptcy reorganization plan last week.

Who will own the Jacksonville-based supermarket operator when it emerges from bankruptcy?

The reorganization plan calls for Southeastern to issue stock to pay off $522 million in unsecured notes, with the noteholders ending up with 100 percent of the company’s stock.

Southeastern, which operates Winn-Dixie and three other supermarket chains, already has approval for the plan from most of the noteholders, so it expects to expedite the reorganization and emerge from bankruptcy in about four months.

However, the bankruptcy filings don’t say who the noteholders are.

The stockholders agreement was included in the filings with an attached schedule titled “Initial Stockholders.”

 However, after the heading, the rest of the schedule was blank.

The current owners, affiliates of Lone Star Funds, will see their equity wiped out in the reorganization, but they will get a five-year warrant entitling them to buy 5 percent of the stock.

There are some hints in the stockholders agreement about future shareholders.

In a section on the company’s five-member board of directors, the agreement references investment firms Fidelity Management & Research Co., Osterweis Capital Management, Alliance Bernstein and First Eagle Investment Management as having a say in the board’s make-up.

There is also language indicating Fidelity and Osterweis may end up with more than 15 percent of the stock.

Boston-based Fidelity (which is not related to Jacksonville-based title insurance company Fidelity National Financial Inc.) has a history with the company.

After Winn-Dixie Stores Inc. went through a Chapter 11 reorganization in 2005 and 2006, Fidelity ended up as its largest shareholder with 12.7 percent of the stock, according to Winn-Dixie’s first annual proxy statement after it emerged from bankruptcy.

Winn-Dixie was a public company when it filed for Chapter 11 in February 2005, but all of the stockholders were wiped out in the reorganization, including the Davis family of Jacksonville who owned about 36 percent.

An entirely new class of stock was issued to a range of creditors which included vendors who supplied goods to the supermarkets and landlords who owned shopping centers housing Winn-Dixie stores.

That stock began publicly trading immediately after Winn-Dixie emerged from bankruptcy in November 2006.

Winn-Dixie was acquired by Bi-Lo Holdings LLC in March 2012, a private company owned by funds managed by investment firm Lone Star Funds.

Lone Star formed Southeastern Grocers as a new company to run Winn-Dixie and Bi-Lo in September 2013, as part of a plan for an initial public offering.

However, Lone Star withdrew the IPO plan in August 2014 and kept the company private.

The company expanded under Lone Star’s ownership by acquiring the Harveys chain in 2013 and forming Fresco y Más, a concept tailored for Hispanic markets, in 2016.

Southeastern now operates 704 supermarkets under the four banners, but it expects to emerge from Chapter 11 with about 580 after closing 94 stores and selling others.

Unlike Winn-Dixie’s previous reorganization, Southeastern will not be a publicly traded company when it emerges.

The new, currently unknown group of shareholders may decide to take it public after the reorganization, but that’s not part of the Chapter 11 plan.

It would be nice for Jacksonville if the new owners decide to go public.

Southeastern’s disclosure statement projects the company will have annual sales of about $8.5 billion when it emerges, big enough to give Jacksonville another Fortune 500 company (after CSX Corp., Fidelity National Financial and Fidelity National Information Services Inc.).

Fortune magazine only includes companies that file public financial statements in its list of the biggest U.S. companies, so we’d have to wait for Southeastern to go public.

With new ownership, that could happen soon.

ParkerVision reports minimal revenue

ParkerVision Inc. did record some revenue in the fourth quarter, as it promised, but it wasn’t a lot.

The Jacksonville-based developer of wireless technology last week reported fourth-quarter revenue of $100,000 from the sale of its in-home Wi-Fi product Milo.

The company had said in its third-quarter conference call that it began shipments of Milo in October.

In last week’s call to discuss fourth-quarter results, ParkerVision officials again expressed optimism that sales would pick up.

“Although the fourth quarter revenues are not material to our overall results, we do anticipate significant increases in revenue in 2018, as we expand the awareness of our brand and to our product line and broaden our sales channels,” Chief Financial Officer Cindy Poehlman said.

With the minimal revenue, ParkerVision reported an adjusted net loss of $5 million, or 26 cents a share, for the fourth quarter.

Regency rises on analyst rating

Regency Centers Corp. was one of the top performers in the Standard & Poor’s 500 index Wednesday, rising $1.93 to $59.02 after Morgan Stanley analysts spotlighted the Jacksonville-based shopping center developer in a report on the industry.

“The company owns grocery-anchored properties that are well positioned given a balanced portfolio of low competition, spending power and e-commerce resistance,” they said.

The analysts initiated coverage of Regency with an “overweight” rating.

Drone Aviation reports biggest contract

Drone Aviation Holding Corp. last week said it received a $1.7 million order from the U.S. Department of Defense for its Winch Aerostat Small Platform, a tactical and mobile aerostat system. The Jacksonville-based company, which reported total revenue of $562,078 in 2017, said the contract is its largest to date.

Drone Aviation’s 2017 revenue dropped 62 percent from $1.47 million in 2016. Its annual report filed with the Securities and Exchange Commission said one of the reasons for the drop was “a longer sales cycle stemming in part from the change in presidential administration and congressional budgeting delays.”

The change in administration included the departure of Drone Aviation Vice Chairman Michael Flynn, who left the company in December 2016 to become President Donald Trump’s national security advisor.

Flynn resigned from the administration in February 2017 but did not rejoin Drone Aviation.

Drone aviation reported a net loss of $10.3 million, or $1.15 a share, in 2017.

Moody’s upgrades Advanced Disposal

Moody’s Investors Service last week upgraded its ratings on Ponte Vedra-based Advanced Disposal Services Inc., citing its “improving leverage position and balance sheet flexibility” and expectations of “good execution and operating momentum as it benefits from the favorable conditions taking place within the domestic solid waste industry.”

“Free cash flow, until recently, had been constricted by infrastructure and growth capital expenditures as well as high interest expense, making meaningful debt repayment challenging,” Moody’s said in a news release.

“With the debt paydown from the IPO proceeds in late-2016 and the refinancing of the senior secured credit facilities in late-2017, interest expense has fallen significantly, sharply boosting free cash flow to resume the de-levering process in 2018 and 2019 following the pause in 2017.”

Fortegra expands to Europe

Jacksonville-based insurance services company Fortegra Financial Corp. last week said it created a European subsidiary headquartered in Malta.

The European unit will offer services from Fortegra’s warranty and consumer products business.

Fortegra was a publicly traded company before being acquired by Tiptree Financial Inc. for $218 million in 2014.

Michaels closing Aaron Brothers

The Michaels Companies Inc., the arts and craft retailer which operates a distribution center in Jacksonville, is closing its Aaron Brothers chain.

As the company announced fourth-quarter earnings, Michaels also said it will close 94 Aaron stores and reposition the brand as a store-within-a-store, providing custom framing services in Michaels stores.

At the end of fiscal 2017, Michaels operated 1,371 stores in the U.S. and Canada under the Michaels, Aaron Brothers and Pat Catan’s brands.

The company reported a strong fourth quarter, with total sales up 8 percent to $1.89 billion and comparable-store sales (sales at stores open for more than one year) up 2.5 percent.

Adjusted earnings of $1.19 a share were 23 cents higher than the fourth quarter of fiscal 2016.

Shoe Carnival earnings rise

Shoe Carnival Inc. reported earnings of 11 cents a share for the fourth quarter ended Feb. 3, 4 cents higher than the previous year and in line with analysts’ forecasts.

Net sales rose 3.9 percent to $243.2 million but comparable-store sales fell 0.5 percent.

The footwear chain said it expects fiscal 2018 comparable-store sales, a key indicator of a retailer’s performance, to be flat to up by a low single-digit percentage.

Former Jacksonville Jaguars owner Wayne Weaver is chairman and the largest shareholder of Indiana-based Shoe Carnival, with his family controlling about 29 percent of the stock.

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