O.C.’s Fidelity Title May Merge With Chief Rival
Irvine-based Fidelity National Financial Inc., which used a string of acquisitions to become the nation’s fourth-largest title insurance company, is discussing a possible merger with a major rival that would create the nation’s largest title insurance company, The Times has learned.
If the deal is completed, Orange County could be home to the nation’s two largest title insurance companies. Industry leader First American Financial Inc. is in Santa Ana, where it is building a giant new headquarters along the Costa Mesa Freeway.
Executives at Fidelity National and Chicago Title Corp., its intended merger partner, declined Thursday to discuss ongoing negotiations. Under terms of the deal, it is expected that Fidelity National will acquire Chicago-based Chicago Title, which analysts said could fetch nearly $1.4 billion.
The proposed Fidelity National-Chicago Title combination was suggested by Fidelity National Chairman and Chief Executive William P. Foley II, an inveterate deal-maker who used mergers and acquisitions to turn the nation’s 48th largest title company into one of America’s fastest-growing companies.
Foley, 54, subsequently used his personal fortune to take a controlling interest in the Anaheim-based parent of the Carl’s Jr. burger chain, where he engineered a string of deals that turned the longtime regional player into the nation’s fourth-largest hamburger chain.
The proposed combination of Fidelity National and Chicago Title would further reshape an industry that plays a vital role in every real estate transaction. Title policies ensure that buyers of homes and other real estate receive a free and clear title.
For decades, the title business was dominated by small, regional agencies around the country. But thin profit margins and the advent of electronic records fueled the rise of a new breed of nationwide title giants, including Fidelity National and First American, that are gaining market share by gobbling up mom-and-pop agencies.
Now, the top six companies issue 91% of title insurance policies, according to Jim Maher, executive vice president of the American Land Title Assn., an industry trade group. A combination of Fidelity and Chicago Title, ranked No. 3, would create a real estate giant with $3.2 billion in revenue, including $2.5 billion from title insurance. The combined companies would write a third of all policies issued nationwide.
Although the industry would lose one of its biggest players, the proposed combination isn’t expected to reduce competition or raise prices for consumers, who now pay between $600 and $900 per policy.
Combination Would Be Industry’s Largest
The proposed 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., a merger that created LandAmerica Financial Group.
Observers said the proposed deal could spark other combinations as competitors scramble for market share. “We’re going to see further consolidation,” Maher said. “Nobody’s big enough.”
Both companies would retain their names and identities, but it’s uncertain whether the proposed combination would result in work force consolidations in Irvine or Chicago. Also unknown is where the combined companies would be headquartered and whether Foley would remain at the helm.
A deal could be announced within the next two weeks, according to sources familiar with the negotiations.
Because Fidelity National and Chicago Title compete in many of the same markets, some consolidation of their operations is likely. And it’s probable that federal antitrust regulators would require the companies to divest some of their operations.
The deal comes during a rough period for the title insurance industry. After a banner year in 1998 when most companies hit new highs in revenue and profit, rising interest rates have slowed activity considerably. Fidelity National recently said it cut about 10% of its work force, or about 850 jobs nationwide, during the first half of 1999 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, analyst at U.S. Bancorp Piper Jaffray. Fidelity’s stock has lost about 50% the past year, closing Thursday at $17.50, down 19 cents. Chicago Title has fared slightly better, dropping 22% during the past year, closing Thursday at $36.69, down 44 cents.
For Fidelity, with 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 portion of its business in six states. The company controls 21% of the California market and is the No. 1 company in several counties. For Foley--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. 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, Billing, Ramsey.
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, which owns the Carl’s Jr. chain. Foley also used Fidelity to make outside investments, buying stakes in companies such as Micro General Corp. and investment banker Cruttenden Roth.
Not surprisingly, it was Foley who approached Chicago Title Chief Executive John Rau--former dean of Indiana University’s business school--earlier this summer about combining the two companies’ operations.
Once the nation’s No. 1 title insurer, Chicago Title spun off last year from parent Alleghany Corp. A rebounding commercial real estate market helped the company grow in recent years to more than 340 offices in 49 states, including California.
Although two of the company’s units, Ticor Title Insurance and Security Union Title Insurance, are based in Pasadena, Rau has made no secret of his desire to make further inroads into California, a market that accounts for 18% of the entire U.S. title business.
A potential thorn to the merger is a class-action lawsuit filed in May by the state of California that accuses Fidelity National and other title and escrow firms of overcharging California consumers as much as $500 million in fees. The company 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 citizens in federal court in San Francisco.
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Top Title Companies
Irvine-based Fidelity National Financial Inc. is talking with Chicago Title Corp. regarding a merger that would create a new leader in the rapidly consolidating title insurance industry. Here’s a look at the industry’s major players, their 1998 revenue from title business, in millions, and market share:
The Players
Major playres, their 1998 revenue from title business and market share:
*--*
Revenue (in millions) Share 1. First American Financial $1,809 21.9% 2. LandAmerica Financial Group 1,780 21.5 3. Chicago Title Corp. 1,605 19.4 4. Fidelity National Financial 943 11.4 5. Stewart Information Services 814 9.8 6. Old Republic 505 6.1
*--*
Fidelity National Financial Inc.
Headquarters: Irvine
Leadership: William P. Foley II, chairman; Patrick Stone, chief operating officer; Frank Willey, president
1998 revenue: $1.3 billion
1998 profit: $105.7 million
Employees: 7,400 nationwide
Offices: More than 400 locations in six states
Subsidiaries/interests: Fidelity National Title Insurance Co.; Alamo Title Insurance; Granite Financial Inc.; Micro General Corp.; American National Financial Inc. (31% ownership); Santa Barbara Restaurant Group (37%); Cruttenden Roth (18%)
Thursday’s close: $17.50, up 19 cents
Chicago Title Corp.
Headquarters: Chicago
Leadership: Richard Toft, chairman; John Rau, president; Peter Leemputte, chief financial officer
1998 revenue: $1.9 billion
1998 profit: $97.2 million
Employees: 10,550
Offices: 340 offices in 49 states
Subsidiaries/interests: Chicago Title Insurance Co.; Ticor Title Insurance Co.; Security Union Title Insurance Co.; Chicago Title Flood Services; Chicago Title Credit Services; Chicago Title Field Services; Chicago Title Market Intelligence
Thursday’s close: $36.69, down 44 cents
Sources: American Land Title Assn., Bloomberg News
