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Texas Business Report: Pulling the Thread in J.C. Penney’s Stock Offering

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Penney Pressed

J.C. Penney’s recent $800 million stock offering is now under scrutiny by the Securities and Exchange Commission, the company disclosed Thursday. The Wall Street Journal reports the Plano-based retailer “received a letter of inquiry … seeking information about the offering, as well as details of the company’s liquidity, cash position and debt and equity financing.”

Penney’s September stock sale caught many investors off guard, after executives had assured them repeatedly that the company had enough liquidity to last at least through the end of the year. Earlier this week a major investor, Dallas-based hedge fund Heyman Capital, announced that it plans to sell all of its remaining shares in the company. 

The Bottom Line: Heyman managing partner Kyle Bass had previously claimed JCP’s stock offering “diluted the stake of existing shareholders by 38 percent,” according to the Dallas Morning News. The value of the retailer’s shares has declined by more than 55 percent so far this year, and revenue has fallen off by 25 percent.

New Work, New Jersey

The global IT outsourcing company Cognizant announced this week that it plans to relocate its U.S. operations hub to College Station from New Jersey, and that it expects to create at least 750 new jobs in Texas. The Associated Press reports the firm “expects to add 10,000 jobs nationwide over the next three years.” 

Governor Rick Perry made the announcement alongside Cognizant executives at Texas A&M University on Monday, adding that the company has also pledged a $150,000 grant “to support science, technology, engineering and mathematics education” at the school for the next three years.

The Bottom Line: Perry, who has been leading a vocal campaign to recruit companies away from other states, said at the event that Texas is in a “a national and even international competition for jobs,” according to the AP—suggesting that he may bring up Cognizant’s arrival as a jab against New Jersey Governor Chris Christie, a likely opponent in the race to become the GOP’s 2016 presidential candidate.

Horton Fears a Coup

Fort Worth–based homebuilder D.R. Horton Inc. won a key victory in federal court this week when the U.S. Court of Appeals ruled that businesses can require employees to sign agreements waiving the right to file class-action lawsuits. The decision overturns a 2012 ruling by the National Labor Relations Board, which found that these kinds of pre-employment arbitration agreements violate the National Labor Relations Act, the Wall Street Journal reports. The board challenged a D.R. Horton policy that required employees to file job-related legal complaints on an individual basis, rather than as a group. 

The Bottom Line: The company’s lead attorney described this week’s decision as “a huge victory, not just for D.R. Horton but for all employers,” according to the Journal. The ruling is a setback for labor groups, which are concerned it could eventually “spell the end of employment class actions.” However, the NLRB says it will not change its policy on the issue unless the Supreme Court intervenes.

Winner of the Week: Conn’s

Shares of The Woodlands-based home-furnishings retailer Conn’s reached an all-time high this week after the company reported earnings and sales that vastly exceeded Wall Street estimates. Mattresses and furniture were the key drivers of this success, as third-quarter sales in those categories nearly doubled since last year, Investor’s Business Daily reports. Total sales reached $310.9 million—a fifty percent increase over the prior year and well ahead of analysts’ projection of $289 million. 

CNBC finance guru Jim Cramer described Conn’s success as “curious” considering the sluggish sales that many similar retailers are experiencing nationwide, suggesting that “something is going on here that’s too big to ignore.” His theory: Because Conn’s stores are primarily located in Houston, Dallas, San Antonio, and smaller towns that have seen major population growth associated with the natural gas boom, “people are taking jobs created by the energy companies and moving into the areas serviced by Conn’s.” 

Loser of the Week: Baylor Scott & White

The credit rating agency Moody’s Investors Service has downwardly adjusted its financial outlooks for both healthcare firms that recently merged to form Baylor Scott & White Health, the Austin Business Journal reported this week. Dallas-based Baylor Health Care System and Scott & White Healthcare, based in Temple, formed Texas’ largest nonprofit health provider when they completed the merger in October.

But Moody’s lowered its ratings for the two companies from “stable” to “negative” in anticipation of some growing pains ahead. According to the ABJ, Scott & White is facing “substantial new hospital construction at a time when its operating cash-flow margin is weak,” as well as “flat patient volume and a high debt load.” Meanwhile, Baylor will be tasked with bringing Scott & White’s balance sheet up to par. Company executives said the downgrade reflects the risks often associated with times of transition, and “the merger will enhance the combined system’s financial position and operating performance over time.”

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