Fidelity National, Matrix Call Off Merger

Title insurer Fidelity National Financial Inc. and Denver mortgage banking company Matrix Capital Corp. said Monday they have called off their merger plans because of regulatory issues.

“The requirements for regulatory approval for the merger were burdensome and raised serious questions” about whether it would be approved, the companies said.

The two companies replaced the merger plan with an agreement whereby Irvine-based Fidelity deposits $250 million in Matrix Capital for 5 1/2 years.

Fidelity National will receive warrants for 150,000 shares of Matrix Capital, which had 6.7 million shares outstanding according to a recent federal filing.

Matrix Capital’s stock tumbled 41% after the announcement, closing at $8.63, off $5.88. Fidelity National’s stock fell 4.4%, or $1.25 a share, to $27.69.

The warrants give Fidelity the right to buy Matrix stock at about $16 a share, according to Allen Meadows, Fidelity National’s chief financial officer. He said Fidelity wanted to show it’s “not walking away from this because of dissatisfaction with Matrix.”

Meadows declined to say what questions from regulators led Fidelity to abandon the takeover.

The Office of Thrift Supervision, which has jurisdiction over Matrix Capital, didn’t block the transaction outright, Meadows said. “But we did feel like our ability to operate the combined entity as we originally envisioned it would have potentially been seriously compromised.”

Fidelity still plans to market its title insurance through Matrix Capital under the terms of the strategic alliance. “We’re making lemonade out of the lemons that we’ve been dealt,” Meadows said. “This could potentially be very lucrative for both parties and is certainly better than walking away.”

Fidelity National agreed in March to pay 0.8 share of its stock for each Matrix share, or a total of $187 million at the time.

At Fidelity National’s closing price of $27.69 on Monday, the purchase would have been worth about $148.4 million.