O.C.’s Fidelity Moves In on US Facilities : Acquisitions: Title insurer comes on strong, offering $15 a share and saying it will fight if the Costa Mesa company refuses.
Fidelity National Financial Inc., the nation’s fifth-largest title insurance company, said Tuesday it wants to buy a Costa Mesa insurer for $79 million.
In its proposal to acquire US Facilities Corp. for $15 a share in cash, Fidelity National also said it is prepared to launch a proxy fight if its offer is rejected.
“They came on pretty strong,” said Mark Matheson, an analyst with Crowell, Weedon & Co. in Los Angeles. “Usually, these things start out a little more friendly, with a softer tone.”
US Facilities will review the proposal during a special board meeting on Friday, spokeswoman Rosemary L. Mulligan said Tuesday. The company would not comment further on the unsolicited bid.
The merger proposal sent US Facilities’ stock soaring $2.56 a share to close at $13.56 in Tuesday’s Nasdaq trading. Fidelity National shares slipped 37.5 cents to close at $17.50 on the New York Stock Exchange.
Fidelity National, which used acquisitions and mergers to expand into a major force in the title insurance industry, in February signaled its intention to make additional acquisitions by completing a note offering that raised $90.8 million.
Fidelity National President William P. Foley II, in a lengthy letter delivered Monday to US Facilities Chairman George Kadonada, said his company wants to complete a “friendly, negotiated merger.”
But Fidelity National also filed preliminary proxy materials on Tuesday with the federal Securities and Exchange Commission in case US Facilities refuses to consider the offer and a proxy fight develops, said Frank P. Willey, Fidelity National executive vice president.
Foley’s letter also noted that Fidelity National has accumulated 471,450 shares, or 8.2%, of US Facilities’ common stock in recent weeks.
US Facilities on Tuesday took the unusual step of releasing the complete text of Foley’s letter, which provides considerable detail about Fidelity National’s proposal. Industry observers said that the letter leaves little doubt that Foley intends to complete the deal.
Insurance industry observers said that the proposed combination would make sense for Fidelity National. While its title insurance is directly tied to interest rate fluctuations, US Facilities’ two subsidiaries, which offer medical insurance and property and casualty reinsurance, are not driven by such changes.
“Bill Foley needs to diversify out of his primary business,” said Jeffrey Kilpatrick, president of the brokerage Newport Securities in Newport Beach. “He faces falling interest rates and a falling-off in the massive number of home refinancings.”
Willey said that the deal would give US Facilities--which he described as a “well-run company”--access to management skills that helped Irvine-based Fidelity National become the nation’s fifth-largest title insurance company.
“Obviously, Bill Foley is going to try and work his magic in a new niche in the insurance industry,” Matheson said. “He’s done so well in the title insurance industry that he thinks he can do things in the niches where US Facilities operates.”
One observer who is familiar with US Facilities described the company as “noticeably undervalued. . . . It’s a gem of a company. Its book value is $11 (per share), and its medical business is growing by 20% a year. That alone makes it a terrific company.”
Earlier this month, US Facilities’ board members initiated a stock buy-back, signaling their belief that the company is worth more than its price per share. US Facilities said at the time that it would repurchase as much as $5 million worth of additional stock during coming months.
Fidelity National is the only other large, publicly traded company in Orange County that has recently announced a stock buy-back. The company said March 31 that it might repurchase as many as 1 million of its shares.
US Facilities said Tuesday that any deal would face close scrutiny by a number of insurance regulatory agencies.
Foley, who is well known in the title insurance industry, gained local prominence in late 1993 when he pieced together an investor group that acquired a controlling interest in Carl Karcher Enterprises, parent company of the Carl’s Jr. fast-food chain.
Foley’s group won the stock by helping founder Carl N. Karcher refinance personal debt that was secured with Karcher Enterprises stock. Foley and Willey later joined Karcher’s board of directors along with fellow investor Daniel D. (Ron) Lane, and Foley subsequently was elected chairman of the fast-food company.
US Facilities reported a $6.8-million profit for 1993 on revenue of $112 million. Fidelity National reported earnings of $36.3 million on revenue of $575.4 million.
