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 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 makes Orange County the nation’s title-insurance capital, with the top two companies. The current industry leader is Santa Ana-based First American Financial Corp., which has $1.8 billion in title revenue. It will fall to a distant second place when the Fidelity-Chicago deal is completed.
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 as much as $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.
The Fidelity-Chicago deal will reshape an industry that is little understood by consumers, but one that plays a part in every property sale in the country. Title insurance, which is required by lenders financing the purchase of land, ensures that a property that is exchanging hands is free and clear of liens or other encumbrances. A typical title policy costs between $600 and $900.
The title industry is struggling with declining sales and profits this year, after doing land-office business in 1998. Rising interest rates have slowed business considerably this year, and the prospect of even higher rates does not bode well for the shares of publicly traded companies like Fidelity and First American.
Under terms of the deal, Fidelity will pay $52 a share for Chicago Title, about half in cash and half in stock. Fidelity will 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 the deal is completed, Chicago Title shareholders will 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.
For Foley, the acquisition is by far his biggest to date. The 54-year-old West Point graduate has become a prolific deal maker in recent years, using a personal fortune accumulated in the title industry to branch out into a host of other businesses. He also is chairman of Carl’s Jr. parent CKE Enterprises Inc., which he has built into the nation’s fourth-largest hamburger chain through two large acquisitions.
Foley also holds stakes in, among other things, Santa Ana-based Micro General Corp. and Newport Beach investment banker Cruttenden Roth.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Title Titans
Irvine-based Fidelity National Financial Inc. will become the nation’s largest title insurer as a result of its $1.2-billion acquisition of Chicago Title Co. Here’s how the title industry will stack up after the merger. The companies derive another $650 million from other businesses. 1998 revenue from title business, in millions, and market share:
1. Fidelity National Financial
Revenue: $2,548
Share: 30.8%
2. First American Financial
Revenue: 1,809
Share: 21.9
3. LandAmerica Financial Group
Revenue: 1,780
Share: 21.5
4. Stewart Information Services
Revenue: 814
Share: 9.8
5. Old Republic
Revenue: 505
Share: 6.1
Source: American Land Title Assn.
