Fidelity to Buy Chicago Title Co.
Fidelity National Financial Inc. said Sunday that it reached an agreement to acquire Chicago Title Co. for $1.2 billion in cash and stock, creating a new kingpin in the nation’s $8-billion title insurance industry.
The combined companies, which would retain Fidelity’s name and Irvine headquarters, would have more than $3.2 billion in annual revenue, nearly 1,000 offices nationwide and command a 30% share of the title market.
Fidelity is the nation’s fourth-largest title insurer with $943 million in annual title revenue and boasts strength in California and the West. Chicago-based Chicago Title is No. 3 with $1.6 billion in title revenue and is a leader in the Midwest and East. Both companies derive additional revenue from other real estate-related businesses.
The deal would drop the current industry leader, Santa Ana-based First American Financial Corp., which has $1.8 billion in title revenue, into distant second place.
Fidelity Chairman William P. Foley II said Sunday that Fidelity needed to grow if it was going to thrive in the rapidly consolidating industry. “If we’re going to continue serving our lenders and our residential and commercial brokers, we need more mass, more size,” he said from his Santa Barbara home.
Foley said the acquisition would boost the earnings of the combined companies by about 10% the first year, with much of that increase coming through cost-cutting. Fidelity expects to save $65 million to $70 million in operating costs--and up to $100 million within three years--primarily by eliminating overlapping corporate and administrative functions.
Foley said it was “safe to assume” that the ax would fall hardest in Chicago, where Chicago Title has about 500 employees at its corporate headquarters. The smaller Fidelity, by comparison, has about 130 employees at its corporate offices in Irvine. Foley declined to say how many workers would lose their jobs.
Chicago Title would keep its name and be operated as a wholly owned subsidiary of Fidelity. The two companies’ vast branch networks would continue to operate separately and compete against each other. “We want to retain as much of the revenue base as possible,” Foley said.
The new, larger title operations would be run by Patrick F. Stone, Fidelity’s chief operating officer. Foley would remain chairman of Fidelity. Chicago Chief Executive John Rau would stay on until the deal is completed, then step down.
The acquisition, approved by the boards of both companies Sunday, is scheduled to be completed by early next year. It requires the approval of federal regulators.
Fidelity would pay $52 a share for Chicago Title, about half in cash and half in stock. Fidelity would tap the financial markets for a debt offering to finance half the deal, Foley said. The company’s board plans to issue another 31 million of stock to help pay for the other half. When completed, Chicago Title shareholders would own about 50% of the larger Fidelity.
The $52-a-share offering price is a 21.6% premium over Chicago’s $42.75 closing price Friday. The company’s stock leaped 17%, or $6.06, in heavy trading Friday after The Times reported that Chicago and Fidelity were in merger talks. Trading in both companies’ shares was halted temporarily Friday afternoon by the New York Stock Exchange until Chicago Title confirmed that the two sides were in discussions. Fidelity shares fell 6 cents Friday to $17.44.
Chicago Title executives couldn’t be reached Sunday. In a statement, Rau said the sale completes a series of goals set when he joined the company in 1996.
