Before accepting a $10-a-share buyout offer from Tiptree Financial Inc. last month, Fortegra Financial Corp. had indications in early spring that potential buyers might pay up to $11.50.
However, by the end of May, after potential bidders completed their due diligence, the best offer for the Jacksonville-based insurance services firm was $10 a share, according to an information statement filed last week with the Securities and Exchange Commission.
Fortegra’s financial adviser, Willis Capital Markets & Advisory, tried but failed to convince the bidders to raise their offers to $11, it said. Fortegra eventually convinced Tiptree to raise its offer from $9.50 to $10 and signed the merger agreement in August.
Fortegra is not holding a special meeting of stockholders to vote on the buyout because it already has the approval of majority shareholder Summit Partners LP, which owns 62 percent of the stock. It filed the SEC statement to give shareholders necessary information, including the background on how the deal came together.
Fortegra, which went public in December 2010, had looked at the possibility of a sale as early as mid-2011, according to the filing.
“At various times over the last three years, our board has considered the possible sale of the company and other strategic alternatives for delivering value to our stockholders, due, in part, to the board’s belief that the market undervalued the company’s stock as a result of, among other things, low trading volume and concerns over uncertainty in the company’s regulatory environment,” it said.
The company’s stock has traded below its $11 initial public offering price since the early months of 2011 and had been trading near the $7 level for most of 2014 before the buyout was announced.
Fortegra expects growth in its business in the coming years. According to the SEC filing, it projects revenue to increase from almost $400 million this year to $525 million in 2018, with net income more than doubling from about $14 million to $29 million over that five-year period.
However, the stock price wasn’t moving. So, at a February 2014 board meeting, the directors decided to seek out possible buyers again. Willis contacted 35 potential parties and eight of them submitted initial indications of interest by early April, according to the filing.
Those eight parties proposed bids of between $9 and $11.50 a share. Tiptree’s original bid was between $9 and $9.30.
By late May, three parties continued to express interest, with the best offer coming from a “financial buyer” that proposed $10 a share. Tiptree offered $9.50 at that time.
The potential financial buyer was given a three-week period to exclusively negotiate a deal but at the end of that period, it “failed to confirm” the $10 price, the SEC filing said.
Willis and the board came back to Tiptree and eventually convinced Tiptree to raise its price to $10 a share.
Fortegra hopes to complete the deal by Dec. 11, which is the end date for the merger agreement, according to the filing. However, the date could be extended to Feb. 11.
Fidelity shedding Remy shares
In the ever-changing investment portfolio of Fidelity National Financial Inc., the Jacksonville-based company announced a plan last week to shed its majority stake in auto parts company Remy International Inc.
Fidelity’s shares in Remy will be distributed to stockholders of Fidelity National Financial Ventures, or FNFV.
You will recall that FNFV was created two months ago as a subsidiary of Fidelity — which is mainly a title insurance company — to hold the non-real estate investment portfolio of Fidelity. Fidelity created a tracking stock to represent the business holdings of FNFV.
FNFV’s holdings include 16.3 million shares of Remy, or 51 percent of the Indiana-based company’s stock. Fidelity originally invested in the company when Remy emerged from Chapter 11 bankruptcy in 2007 and helped Remy go public itself in 2012, while retaining a majority of the stock.
“We believe a completely independent Remy with a fully distributed common stock will better enable Remy to pursue its strategic plans and be a catalyst for creating additional long-term value for its shareholders,” Fidelity Chairman Bill Foley said in a news release.
Under the distribution plan, FNFV shareholders will get 0.18117 shares of Remy for every FNFV share they own.
As part of the transaction, Remy will also acquire a small document conversion business held by FNFV called Fidelity National Technology Imaging LLC.
Fidelity expects the deal to close in December or in early 2015.
Activist fund manager raises Fidelity stake
In other Fidelity news, an activist hedge fund manager said in an SEC filing last week that he has bought additional shares of Fidelity.
Keith Meister, managing partner of Corvex Management LP, bought 535,000 shares on July 31 for $26.64 each and 1.4 million shares on Sept. 8 for $27.60 each, bringing his total investment in Fidelity to 20.2 million shares, or 7.3 percent of the stock.
That would make Meister and Corvex the second-largest Fidelity shareholder behind T. Rowe Price Associates Inc., which controls 8 percent of the stock, according to the company’s latest proxy filing.
Meister first invested in Fidelity last fall and said in his SEC filings that he intended to have discussions with the company’s management about its business. Last week’s filings did not give a reason for his additional share purchases.
At the same time he increased his stake in Fidelity, Meister was selling off shares in FNFV that Corvex received when Fidelity created the tracking stock.
In a series of transactions over the last two months, Meister and Corvex sold about 3.3 million FNFV shares, according to a separate SEC filing. That reduced his stake in the tracking stock to 2.7 million shares, or 2.9 percent of all shares outstanding.
That filing did not give a reason for the sale of the FNFV shares.
CSX raises earnings forecast
With freight volume “growing at a rate slightly higher than expected,” CSX Corp. last week raised its earnings forecast for the third quarter.
After previously saying it expected earnings to be flat, Chief Financial Officer Fredrik Eliasson told investors and analysts at a conference in London that CSX now expects earnings slightly higher than third-quarter 2013 earnings of 45 cents a share, despite increased costs to maintain service levels, according to a company news release.
Analysts had been projecting CSX to earn between 44 cents and 51 cents a share, according to Thomson Financial, with the average forecast at 47 cents.
CSX continues to forecast “modest” earnings growth for all of 2014.
The Jacksonville-based railroad company also said “economic trends and the company’s continued commitment to leveraging high-growth opportunities underpin confidence in its ability to return to generating double-digit earnings growth and margin expansion beginning in 2015.”
CSX is looking for earnings growth beyond 2015, Eliasson said at the conference held by UBS.
“The investments CSX has made in market diversity and network reach, coupled with freight demand projections in the next decade, have positioned the company to continue delivering sustainable, profitable growth by capitalizing on the efficiency of rail to serve the needs of a growing global population,” he said, according to the news release.
Moody’s raises CSX rating
Meanwhile, Moody’s Investors Service last week said it is feeling better about the outlook for coal shipments on CSX Corp.’s rail lines.
The ratings agency upgraded its senior unsecured debt rating on CSX from Baa1 to Baa2 and said the ratings outlook is stable.
“The upgrade reflects Moody’s assessment that the risk of further declines in the company’s domestic coal business has subsided, with only a limited number of coal-fired power plants in CSX’s network remaining that are expected to close as a result of more stringent environmental legislation,” Moody’s said in a news release.
Moody’s noted that coal shipments account for about 25 percent of CSX’s revenue, so the decline in volumes in recent years has affected its business.
“Despite the uncertain outlook for CSX’s sizeable export coal business, Moody’s believes that the diminished risk in the company’s domestic coal business will enhance CSX’s growth prospects and help to realize (adjusted) operating margins in excess of 30 percent,” it said.
“The stable ratings outlook is predicated on Moody’s expectation that an uptick in U.S. GDP growth in 2015 will drive broad-based demand in CSX’s merchandise segment, while its intermodal segment should grow somewhat faster with continuing migration of freight from highways to CSX’s rail network,” it said.
International Baler reports earnings jump
International Baler Corp. reported a big jump in earnings for the third quarter ended July 31, due to the timing of shipments of balers made by the company to fill its order backlog.
The Jacksonville company reported net income of $541,366, or 10 cents a share, compared with $29,574, or 1 cent a share, in last year’s third quarter, according to a quarterly report filed with the SEC last week. Sales nearly doubled to $6.1 million.
In its report, International Baler said the company shipped eight synthetic rubber balers in the third quarter this year, compared with only two in the third quarter of fiscal 2013.
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