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Title Insurers LandAmerica, Fidelity National Move Toward $126M Merger
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| Copyright: | A.M. Best Company, Inc. | | Source: | BestWire Services | | Wordcount: | 608 |
Fidelity National Financial Inc. said it has bid to purchase rival Richmond, Va.-based LandAmerica Financial Group Inc., in a $126 million deal that would merge the second- and third-largest U.S. title insurance groups.
The deal, which remains subject to shareholder and regulatory approvals, would see a swap of 0.993 shares of Fidelity National (NYSE: FNF) for each LandAmerica (NYSE: LFG) share. Together, the companies controlled 46.3% of the title insurance market in 2007, and have posted $5.3 billion of pro forma revenues through the first three quarters of 2008. The combined unit also would have a $5.5 billion combined investment portfolio and $2.6 billion in reserves, the companies said.
The deal calls for LandAmerica to first divest itself of its Centennial Bank unit, and FNF would have until Nov. 21 to conduct a due diligence review of LandAmerica''s operations and financial condition.
Under terms of the deal, FNF''s title insurance subsidiaries will provide liquidity equal to the statutory book value of LandAmerica''s Commonwealth Land Title Insurance Co. and Lawyers Title Insurance Corp. units. Proceeds would be used to pay down LandAmerica''s revolving credit facility and private placement senior notes. The total debt of both companies is expected to be reduced by $250 million, with FNF''s debt to capitalization ratio remaining at about 30%.
FNF subsidiary Chicago Title Insurance Co. will provide additional liquidity to LandAmerica through a $30 million stand-by secured credit facility, which could not be drawn upon until FNF completes its due diligence review. Credit tapped under the facility would bear interest at 400 basis points above the London interbank offer rate, and would be secured by $155 million of auction rate securities held by LandAmerica.
FNF Chairman William P. Foley would remain at the helm of the combined company, while Theodore L. Chandler, LandAmerica''s chairman and chief executive officer, would join FNF as vice chairman.
"The unprecedented credit freeze and depressed real estate market have negatively impacted our business to the point that it has become increasingly difficult for LandAmerica to remain an independent public company," Chandler said in a statement. "We are pleased to join the FNF family of companies and believe that this combination is in the best interest of our shareholders, customers and employees."
Foley suggested the companies, which each has engaged in major cost-cutting and employee reduction initiatives over the past two years, would realize $150 million in additional "cost synergies" through the "areas of corporate and administrative overhead, direct and agency operations and claims management and processing."
The move is the latest sign of consolidation and cost-cutting in the title insurance market, which has been forced to shed tens of thousands of employees during the housing market downturn. In an August special report, A.M. Best noted the outlook for the title insurance industry for the balance of 2008 and for 2009 remains negative, and any improvement will depend largely on the length and depth of the housing downturn.
On Oct. 30, A.M. Best revised the outlook for Fidelity National Financial Group and its eight title insurance members to negative from stable, while affirming the group''s financial strength rating of A (Excellent). Fidelity''s revised rating outlook was based on the title group''s announcement of $262 million in reserve strengthening due partly to higher than expected adverse development of claims from policy years 2006 and 2007, along with a somewhat more conservative estimate of expected claims from the current policy year.
Fidelity was trading at $10.06 a share in late afternoon trading on Nov. 10, down 10.60% from the previous close, and LandAmerica was trading at $8.20 a share, down 5.75% from the previous close.
(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)
This is a news service of Thomson Business Intelligence Service ©2006. This content is for your personal use only, subject to Terms and Conditions. No redistribution allowed.
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