For Immediate Release
Chicago, IL – December 18, 2013 – Zacks Equity Research highlights Towers Watson ( TW- Free Report) as the Bull of the Day and Big Lots Inc. ( BIG- Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on the Kohlberg Kravis Roberts & Co. L.P. ( KKR- Free Report), KKR Financial Holdings LLC ( KFN- Free Report) and The Goldman Sachs Group, Inc. ( GS- Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
Towers Watson ( TW- Free Report) is primed to cash in on the expansion of health care exchanges. This Zacks Rank #1 (Strong Buy) has been acquiring companies to expand its exchange business, which was already expected to grow by the double digits in fiscal 2014.
Towers Watson is a professional services consulting company that specializes in the management of employee benefits, talent management, rewards and benefit exchanges, aka the health care exchanges. It has 14,000 associates worldwide.
On Nov 22, Towers Watson announced it had acquired Liazon Corporation, a privately-held developer of private benefit exchanges for active employees, for $215 million. Liazon, which was founded in 2007, focused on companies with 100 to 10,000 employees, or the small to mid-sized company.
This fills a hole in Towers Watson exchanges business which had focused on larger companies with more than 100,000 employees. Towers Watson expects smaller companies to move to the exchange model faster than the larger companies. It also gives Towers Watson a big entry into the active employee exchange business, instead of the retirees business.
Liazon had 100,000 on its active exchanges. Towers Watson expects to have 40,000 in fiscal 2014. Its combined 140,000 customers already puts it as one of the larger national players in the active exchange business.
Bear of the Day:
What's wrong with Big Lots Inc. ( BIG- Free Report)? Once the darling of Wall Street, this closeout retailer is a Zacks Rank #5 (Strong Sell) as earnings are expected to fall 22.7% this year as same store sales decline.
Big Lots operates 1,526 Big Lots stores in the United States, 5 Big Lots stores in Canada and 73 Liquidation World and LW stores in Canada.
On Dec 5, Big Lots reported its third quarter fiscal 2013 results and announced it would close its Canadian operations by the first quarter of fiscal 2014. It acquired the Canadian operations in July 2011 but it could not turn around the business. The Canadian operations remained unprofitable.
Closing up Canada would allow Big Lots to focus on its U.S. stores. Those stores are also struggling.
In the third quarter, same store sales at U.S. stores fell 2.5%. The company expects fourth quarter same store sales to decline in the low to mid-single digits.
For the year, total U.S. sales are expected to decline 6% to 8%.
Inventories also rose in the third quarter to $1.24 billion from $1.19 billion a year ago. The rise was due to more U.S. stores and a 2% increase in inventory per store in the U.S. Rising inventories are usually not a good sign for a retailer.
KKR to Buy Financial Wing for $2.6B
In line with its acquisition strategy, private equity firm Kohlberg Kravis Roberts & Co. L.P. ( KKR- Free Report) announced a deal to acquire KKR Financial Holdings LLC ( KFN- Free Report) in an all-stock deal worth $2.6 billion. KKR Financial is currently managed by a subsidiary of KKR Asset Management, a subsidiary of Kohlberg Kravis.
According to the deal, shareholders of KKR Financial will receive 0.51 common units of Kohlberg Kravis for every common share of KKR Financial that they hold. The exchange ratio represents $12.79 per share of Kohlberg Kravis, reflecting a significant premium of 35% per share of KKR Financial, based on closing price of both the stocks as of Dec 16.
After the acquisition, KKR Financial will operate as a subsidiary of Kohlberg Kravis. However, Kohlberg Kravis will not alter KKR Financial’s funding structure.
The purchase will be funded from a proposed new issue of 100 million shares. The deal, which is subject to a vote by shareholders of KKR Financial, is expected to close by the first half of 2014.
Based in San Francisco, KKR Financial was founded in 2004 as a mortgage real estate investment trust (:REIT) but later turned into an investor in corporate debt after being hit by the sub-prime mortgage crisis in 2007. Being a specialty finance company, it operates a wide range of asset portfolios and primarily invests in financial assets including private and public equity investments, high yield bonds and distressed securities.
According to Kohlberg Kravis, upon closure the deal is expected to pave the way for a 2% accretion on Kohlberg Kravis’ total distribution per unit basis while its balance sheet is expected to grow from $7.2 billion as of Sep 30,2013 to $9.3 billion. Further, it is expected that the acquisition will enhance liquidity, increase return to shareholders and build capital.
For Kohlberg Kravis, The Goldman Sachs Group, Inc. ( GS- Free Report) and Simpson Thacher & Bartlett are representing the company.
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