Fidelity Puts Hold on Acquiring More Hammond Shares

The Hammond Co., the Newport Beach mortgage banking firm concerned about a possible takeover, said Monday that Fidelity National Financial Inc. has agreed not to buy any more of its stock until Oct. 12.

Hammond also said it has asked to talk with Fidelity, an Irvine title insurance company that operates in 30 states, about entering into a standstill agreement, which would prohibit Fidelity from purchasing more shares of Hammond’s stock.

The temporary agreement, which began Sept. 28, gives the heads of both companies an opportunity “to sit down and have a heart-to-heart talk about our intentions,” said William P. Foley II, president of Fidelity.

The halt in Fidelity’s buying spree eases briefly Hammond’s concerns about a takeover. In the last two months, the firm’s stock purchases gave it a 23.6% stake in Hammond. Two weeks ago, Fidelity filed a document with the Securities and Exchange Commission saying it was considering launching a tender offer for the firm.

News of the temporary agreement may have piqued interest in Hammond stock, which was the largest percentage gainer on the over-the-counter market on Monday. Its stock closed at $5.875 a share, an increase of 34.3%--or $1.50 a share--over Friday’s close.

Alarm Expressed

Thomas T. Hammond, the mortgage banking firm’s chairman and president, said the situation was very sensitive and declined to discuss it further. He has previously expressed alarm over Fidelity’s initial stake and has worried about the firm’s intent.

Fidelity isn’t necessarily looking to take over Hammond, Foley said. Rather his firm was interested in buying stock “at or below book value,” the shareholder equity listed in Hammond’s financial statements. Hammond’s book value was $4.49 as of June 30.

When a company’s stock trades below its book value, as Hammond’s has, it is considered undervalued because the company’s value per share is greater than the cost of buying a share. That makes the stock a bargain for buyers and a target for anyone wishing to take it over.

With Hammond’s stock now selling above book, Fidelity probably wouldn’t have bought more shares even without the temporary standstill agreement, Foley said.

‘Misread Intention’

“We believe--we know--that Tom misread our intention when we bought this last block of stock,” Foley said. “Our intention is to increase our purchases of shares in Hammond only at a reasonable price, which we think would be below book prices.”

Fidelity picked up its latest block of stock at prices ranging from $4 a share to $4.25 a share.

Fidelity took Hammond by surprise in late May when it revealed that it had purchased a 16.3% stake in the regional firm for what it said at the time was for investment purposes only.

Its announcement came after Hammond had launched a tender offer to buy back some of its shares to boost the stock price. After the successful offer, the company retired one-fifth of its stock, increasing Fidelity’s stake to 20%.

Industry analysts have said the Hammond Co. would be a good acquisition for Fidelity because the title insurer could feed off the real estate loans Hammond makes to sell its title policies.

Fidelity officials, though, have said that they will not pursue an unfriendly takeover of Hammond.