Shareholders of US Facilities Corp. voted overwhelmingly to sell the insurance holding company to the highest bidder, and they narrowly elected two directors nominated by the company's hostile pursuer, according to results released Thursday.
Nearly 59% of the shares voted were cast at Wednesday's annual meeting in favor of the sale proposal sponsored by Fidelity National Financial Inc. in Irvine. Only 37% voted against the resolution, and the rest abstained.
The victory for Fidelity, the nation's fifth-largest title insurer, should lead to negotiations soon on its hostile $79-million offer to take over US Facilities. With no other bidders in sight, Fidelity hopes to have the highest offer at $15 a share, though the price will depend on a detailed review of US Facilities' financial condition.
"This is a major accomplishment from our perspective because it directs management and the directors to put the company up for sale," said William P. Foley II, Fidelity's chairman. "They had never agreed to that before. Now the company must be sold."
Foley pointed out that the vote was "not a mandate that the company be sold to Fidelity but to the highest bidder." He noted, however, that "we're a very, very serious bidder."
US Facilities already has a committee of outside directors and an investment banker reviewing its options, but it had not given them authority to negotiate a sale. That authority is now expected to be given.
Frank P. Willey, a Fidelity executive vice president, said he hopes to set up a negotiating schedule that includes a review of non-public financial information at US Facilities.
"We had confidence in our positions and worked hard to make sure stockholders understood them," said Cecilia Wilkinson, a US Facilities spokeswoman. But the company accepted its defeat on the sale proposal.
However, US Facilities Chairman George Kadonada said the company may challenge the election of Fidelity's director-nominees, Newport Beach lawyer Andrew F. Puzder and Wall Street money manager Seymour Preston Jr. He said the company will decide in a week whether to go to court.
Fidelity's candidates edged management's slate by only 23,808 votes, or 0.5% of the shares cast, after independent vote tabulators threw out 80,386 shares that appeared to be for management's slate.
In a voice that broke once while reading a prepared statement, a tense Kadonada said US Facilities will investigate the reason why the shares that could have provided the winning margin for the company were thrown out. But Willey was confident that no court would uphold a challenge.
Kadonada said the election is important because, with management's slate, the company could try to attract other suitors that could drive the price of its stock higher. With Fidelity's candidates on the board, he said, other prospective buyers may shy away because they might perceive that Fidelity has the advantage.
What makes the defeat more agonizing for US Facilities is that the disqualified shares are owned by the company's employees through their 401(k) retirement program. "We all feel that this is a very unfortunate circumstance," Wilkinson said.
Auditors disqualified the shares because they couldn't determine which side held the legitimate proxy--the right to vote those shares. Shareholders voting by proxy were supposed to turn in a white form if they were voting for management or a blue form if they were voting for Fidelity.
Wall Street responded favorably to the vote. The price of US Facilities stock rose 56.25 cents to close at $14.125 a share in Thursday's Nasdaq trading. Fidelity's stock, which has dropped a few dollars a share over the last month, closed at $16.625 a share, up 12.5 cents, on the New York Stock Exchange.
Foley said he wants US Facilities to help steady earnings at his real estate-related business. Fidelity's aim is to diversify so it can level out its operational peaks and valleys.