Even before Hunter Harrison began pushing for his job, Michael Ward was planning his retirement as CEO of Jacksonville-based CSX Corp.
Harrison, the recently retired CEO of Canadian Pacific Railway Ltd., wants to take over CSX and was trying to negotiate an agreement with the company. Harrison is working with hedge fund Mantle Ridge, which controls 4.9 percent of CSX stock.
After discussions stalled, CSX last week said it will hold a special meeting to let shareholders decide if they should accept Harrison’s contract demands.
However, CSX said in its announcement about the meeting that it was already looking for Ward’s successor.
“CSX had been engaged in CEO succession discussions and was planning to make an announcement,” the company said in the news release.
But “in light of Mr. Harrison’s notable experience and accomplishments,” the board decided to open talks with Harrison when he expressed interest.
The 66-year-old Ward had planned to retire in 2016 before his heir apparent, then-CSX President Oscar Munoz, left to become CEO of United Continental Holdings Inc. in September 2015. Ward then agreed to stay on for three more years.
Ward said at the time that any of three top CSX officials could be in line to succeed him: President Clarence Gooden and Executive Vice Presidents Cindy Sanborn and Fredrik Eliasson.
Ward has worked at CSX for 39 years and became CEO in 2003.
Harrison is 72 and one point of contention in the negotiations was the CSX’s board request for a medical review before hiring him.
A bigger issue is his requested compensation package, which CSX said would exceed $300 million. Stockholders will be asked to vote on Harrison’s proposed package.
Some analysts don’t think it will be a big issue with shareholders.
“Initial feedback from investors so far is that Hunter’s compensation package is higher than they expected, but will ultimately be supported. We remain very confident that shareholders will vote in favor of Hunter, so we expect he’ll become CEO in around 2 months,” Wolfe Research analyst Scott Group said in a research note.
Judging by the rise in CSX’s stock price since Harrison’s interest became known, Deutsche Bank analyst Amit Mehrotra also expects shareholder approval.
“While this may seem like an extraordinary package, we don’t see significant hurdles in getting shareholder approval — CSX’s equity value increased by just over $8 billion the day Hunter resigned from CP, which in our view makes $300 million look like a bargain,” Mehrotra said in a research note.
“The more contentious point, in our view, will be board representation,” he said.
CSX said Mantle Ridge is seeking six of 14 seats on the board of directors, a large number for a shareholder owning a relatively small percentage of the stock.
“It’s difficult to say how this will all play out, though it will likely be more complicated than most had expected. CSX appears willing and able to appoint Hunter Harrison as CEO, but handing over effective control of the company to a sub-5 percent shareholder is a very valid concern,” Mehrotra said.
In a letter to the board Thursday, Mantle Ridge CEO Paul Hilal disputed that he wanted six seats.
He said he gave a list of 11 individuals who could serve on the board, each of whom “is entirely independent of me. “
Hilal also disputed CSX’s $300 million estimate of Harrison’s proposed compensation package, but his description of the proposal does add up to more than $200 million.
PHH Corp. will retain Jacksonville presence
Although PHH Corp. is turning over the lease on its Jacksonville offices to LenderLive Network LLC, New Jersey-based PHH will continue to have a presence in that Baymeadows location.
The mortgage banking company will sublease space from LenderLive and have about 100 employees in that office, spokesman Dico Akseraylian said.
PHH last week agreed to sell its private label solutions business to Denver-based LenderLive, which said it will hire 250 to 300 PHH employees at the site.
Rayonier stock downgraded after reaching high
Rayonier Inc. reached a 52-week high after its fourth quarter earnings report two weeks ago, which prompted two analysts to lower their rating on the Jacksonville-based timber and real estate company.
Chip Dillon of Vertical Research Partners lowered his rating from “buy” to “hold,” with the stock up about 50 percent over the past year.
“We are downgrading our investment rating on the shares of Rayonier Inc. as the stock’s price increase, as well as our modest target-price reduction, leaves insufficient upside for the stock to continue warranting a buy rating,” Dillon said in his research note.
His price target of $29, with the stock trading at $28.38 at the time, would represent a 5.7 percent one-year return for shareholders when coupled with dividend payments.
“Assuming no changes to our estimates and expectations, we could see returning to a buy rating should the stock fall to $26 or below,” he said.
D.A. Davidson analyst Steven Chercover also lowered his rating based on price.
“We are downgrading shares of Rayonier from buy to neutral given the limited upside to our $30 target, which is based on a 10 percent discount to our NAV (net asset value) estimate,” Chercover said in his note.
Landstar upgraded with other truckers
Trucking company stocks surged during a post-election rally in November and December, prompting Stifel Nicolaus analyst John Larkin to downgrade Jacksonville-based Landstar System Inc. and five other companies from “hold” to “sell.”
However, now that year-end earnings are out and the market has settled a bit, Larkin last week upgraded the six trucking companies back to “hold.”
“Should policy out of the White House, above and beyond a corporate tax rate reduction, result in the stimulation of incremental freight demand, we think these names could well be positioned for upward revisions in EPS estimates,” Larkin said in a research note.
“Assuming the economy holds up or accelerates, we’re becoming more constructive on the names,” he said.
Analyst likes Web.com results
Web.com Group Inc.’s fourth-quarter earnings were difficult to assess, with the website services company relying on earnings before interest, taxes, depreciation and amortization (EBITDA) as its primary metric.
However, at least one analyst liked what he saw.
Wells Fargo analyst Gray Powell said in a research note that fourth-quarter EBITDA was about 5 percent better than Wall Street estimates and the Jacksonville-based company’s first-quarter earnings guidance was in line with forecasts.
“While revenue is expected to be down quarter-over-quarter in the first quarter, Web.com management has a high degree of confidence that growth will trough in Q1, improve in Q2 and accelerate in the second half of 2017,” Powell said.
“With this in mind, the company believes growth can return into the mid-single digit range by the end of 2017,” he said.
Powell maintained an “outperform” rating on the company and increased his valuation range on the stock from $20 to $23 to a range of $24 to $27.
The stock was trading at $19.75 at the time of the report.
FirstAtlantic raises dividend
FirstAtlantic Financial Holdings Inc. last week said it increased its quarterly cash dividend by a penny to 4 cents a share.
“We believe the increase in dividend is reflective of our ability to return value to our shareholders and is an indication of the company’s financial strength and our positive outlook for the future,” CEO Mitchell Hunt said in a news release.
The Jacksonville-based company is the parent of FirstAtlantic Bank.
SoftBank buying Fortress for $3.3B
Tokyo-based technology conglomerate SoftBank Group Corp. last week agreed to buy Fortress Investment Group LLC for $3.3 billion.
Fortress’ investment portfolio includes Jacksonville-based Florida East Coast Railway, which it acquired in 2007. Bloomberg News reported in October that Fortress was working with investment bankers to possibly sell the 351-mile railway that runs from Jacksonville to Miami.
Under the sale agreement with SoftBank, Fortress will continue to operate as an independent subsidiary headquartered in New York, with Fortress’ senior investment team remaining in place.
GEE Group reports profit
GEE Group Inc. last week reported earnings of $51,000, or 1 cent a share, for the first quarter ended Dec. 31, reversing a loss the previous year.
The Illinois-based staffing firm run by Jacksonville executive Derek Dewan said revenue rose 19 percent to $21 million.
“We are pleased with GEE’s solid first-quarter performance and are encouraged that our business has gained momentum in January and February,” Dewan said in a news release.
GEE has grown through acquisitions since Dewan took over as CEO in 2015, and he said “we anticipate completing significant strategic acquisitions that will be accretive to earnings and add extensively to our service delivery network.”