First American to split in two Tuesday
After more than a century in business — and more than two years of planning — the time has arrived to split up First American Corp., the Santa Ana real estate services giant that employs more than 30,000 people and bills itself as America’s biggest provider of business information.
On Tuesday, each share of the company will be replaced by a share in each of two companies: the original title insurance and escrow business, which will trade as First American Financial Corp., and the newer financial data business, which also will be listed on the New York Stock Exchange, as CoreLogic Inc.
First American Chairman Parker Kennedy, who will retain that role at both companies after the spinoff, said he always felt he was accountable to two sets of shareholders, neither of which had much interest in the other business — hence the spinoff, which was announced in January 2008.
“Now they can buy an insurance play or a data play separately,” said Kennedy, great-grandson of company founder C.E. Parker.
The businesses have different sales patterns, Kennedy said, with the fortunes of the insurance business tied more closely to the ups and downs of the property markets.
First American shareholders have ridden the boom-and-bust roller coaster: The stock traded above $55 in May 2007, skidded nearly to $15 in November 2008, and has since climbed back above $30. It closed at $34.03 on Friday, up 13 cents on the day.
The market clearly values the data business more than it does the insurance segment. Trading already has begun in “when issued” shares, with CoreLogic at $19.59 on Friday and First American Financial at $14.45.
First American, founded in 1889, runs a close second behind Fidelity National Financial Inc. of Jacksonville, Fla., in title insurance and escrow revenue. That’s been a tough business amid the housing bust, and the company has closed 400 offices and cut its title insurance staff by more than 40% since the market tanked in 2007, Kennedy said.
The cost cuts enabled First American to beat analysts’ expectations for the first quarter this year, when it earned $29.5 million on revenue of $1.36 billion. Last year it earned $200 million on $6 billion in revenue after losing a combined $29 million in 2007 and 2008.
The CoreLogic financial data business, which is expected to have revenue of about $1.9 billion this year, will be the largest provider of property and consumer credit data to the financial services industry, according to First American.
The business is able to keep its revenue and profit up in tough times as well as good ones. For example, sales of services to help lenders minimize losses on troubled mortgages and to manage repossessed property have boosted its results during the downturn, noted Keefe, Bruyette & Woods analyst Nathaniel Otis.
With vast proprietary databases of information on both real estate transactions and consumer credit, CoreLogic can not only help determine whether someone qualifies for a mortgage, but also affect whether that person can get hired, rent an apartment, buy a car or open a business.
Parker said certain of his fraud-detection services could have prevented some of the shady dealings that intensified the mortgage and housing meltdown. For example, he said, they can detect a practice that occurred at the peak of the housing bubble, when fraud artists would apply for several mortgages at a time with none of the lenders realizing the others were also providing funds.
The company itself is dealing with fallout from the easy-money era. In a lawsuit filed in March, Bank of America Corp. contended that First American moved a bit too fast in employing its QuickClose system during the boom, failing to gather independent information on liens and other matters and not making good on more than 5,000 mortgages it was supposed to protect.
In its response to the lawsuit, filed in Mecklenburg County Superior Court in Charlotte, N.C., where BofA is based, First American has denied wrongdoing. Through spokeswoman Carrie Gaska, it also has said that it regrets the troubles with its “valuable customer” and hopes to resolve the dispute out of court.
