Giant Title Insurers in Merger Discussions
Two of the nation’s largest title insurers, Fidelity National Financial Inc. and rival Chicago Title Corp., are discussing a merger that would make them the market leader in a rapidly consolidating and increasingly competitive industry, The Times has learned.
A combination of Irvine-based Fidelity National, the No. 4 title insurer, and the larger Chicago Title, ranked No. 3, would create a real estate giant with $3.2 billion in revenue, including $2.5 billion from title operations.
The industry’s current leader is Santa Ana-based First American Financial Inc., with $2.8 billion in revenue, including $1.8 billion from title operations.
It is expected that Fidelity National would buy Chicago Title, but both companies would retain their names and identities. Analysts said the price of the deal could be as high as $1.4 billion.
Executives with the two firms declined to comment Thursday. A deal could be announced within the next two weeks, according to sources familiar with the negotiations.
The merger would be the largest yet in the $8-billion title insurance industry, surpassing last year’s $657-million purchase of Commonwealth Land Title Insurance Co. and Transnation Title Insurance Co. by Lawyers Title Insurance Co. That deal resulted in the creation of LandAmerica Financial Group.
Though the industry would lose one of its biggest players, a merger would probably not reduce competition or raise prices for consumers, analysts say.
Title policies, which ensure that buyers get title to property free and clear, are part of virtually every residential real estate transaction and cost about $600 to $900 per policy.
A combined Fidelity-Chicago would write nearly one in three title policies nationwide. Analysts said the merger could spur other combinations among industry leaders.
For decades, the title business consisted chiefly of small, regional agencies scattered across the country. But thin profit margins and the advent of electronic records fueled the rise of nationwide title giants that have gobbled up mom-and-pop agencies in their effort to capture market share. Today, the top six companies issue 91% of the policies, according to Jim Maher, executive vice president of American Land Title Assn., an industry trade group.
“We’re going to see further consolidation,” Maher said. “Nobody’s big enough.”
Because Fidelity National and Chicago Title compete in many of the same markets, some consolidation of their operations would be likely. In addition, federal antitrust regulators have required title giants seeking to merge to divest some of their operations.
The deal comes during a rough period for the title insurance industry. After a banner 1998, when most companies hit new highs in sales and profit, rising interest rates have slowed activity considerably. Fidelity National recently said it has cut about 10% of its work force, or 850 jobs nationwide, during the first half of this year and expects to shave 500 more jobs by the end of the year.
“During the past year, all the companies are having a tougher time,” said Michael Grondahl, an analyst at U.S. Bancorp Piper Jaffray. Fidelity’s stock has lost about 50% over the last year, closing Thursday at $17.50, up 19 cents. Chicago Title has fared slightly better, dropping 22% over the last year, closing Thursday at $36.69, down 44 cents. Both trade on the New York Stock Exchange.
Once the nation’s top-ranked title insurer, Chicago Title was spun off last year from parent Alleghany Corp. In recent years, a rebounding commercial real estate market helped the company grow to more than 340 offices in 49 states, including California.
Though two of the company’s units, Ticor Title Insurance and Security Union Title Insurance, are based in Pasadena, Chief Executive John Rau has made no secret of his desire to make further inroads into California, which accounts for 18% of the entire U.S. title business.
For Fidelity, which does about one-third of its business in California, the acquisition would provide a platform to further expand its operations nationwide. Currently, Fidelity does a large proportion of its business in six states. The company controls 21% of the California market and is the No. 1 company in several counties. For Chairman and Chief Executive William P. Foley II--who owns nearly 16% of Fidelity--a merger with Chicago Title would be the biggest acquisition he’s ever pulled off.
He took over Fidelity in 1984 when it was a tiny, Phoenix-based title agency and created one of the fastest-growing companies in the nation. Last year, Fidelity wrote more than $900 million in title policies.
“He started with really nothing and built Fidelity into an unbelievably powerful entity,” said Todd Pitsinger, an analyst at Friedman, Billings, Ramsey & Co.
Foley’s investment in Fidelity made him a multimillionaire and provided a springboard into other investment activities, including a winery and a stake in fast-food giant CKE Restaurants, parent of Carl’s Jr. Foley also used Fidelity to make outside investments, purchasing stakes in such companies as Micro General Corp. and investment banker Cruttenden Roth.
Not surprisingly, it was the deal-making Foley who approached Rau--the former dean of Indiana University’s business school--this summer about combining the companies’ operations.
A potential hurdle for the merger is a class-action lawsuit filed by the state of California in May, accusing Fidelity National and other title and escrow firms of overcharging California consumers as much as $500 million. The company subsequently said it is confident it can quickly resolve the state’s concerns. But two months later a separate lawsuit with similar allegations was filed by private citizens in federal court in San Francisco.
