Wall St. Reacts Warily to Fidelity Merger Talks

Acquisition talks between Irvine-based Fidelity National Financial Inc. and its larger rival, Chicago Title Corp., got a mixed reception from Wall Street on Friday, with some analysts expressing reservations about the deal.

Shares in Chicago Title surged nearly 17% to close at $42.75 Friday in heavy trading on the New York Stock Exchange, but questions and skepticism about the proposed deal kept the share price well below the $57-to-$64 range that analysts predicted Chicago Title would fetch.

“Normally a stock would shoot up in a deal like this, but it really just sat there for much of the day,” said one New York analyst whose investment company owns stock in both companies. “A lot of people are scratching their heads about this one.”

Responding to an article Thursday in The Times, Chicago-based Chicago Title, the No. 3 title insurer, confirmed Friday that it was negotiating to be acquired by Fidelity National, the nation’s No. 4 company. The deal would result in a title insurance giant with more than $3.2 billion in revenue and about a 30% share of the U.S. title market.

The biggest surprise on Wall Street was that the proposed deal calls for Chicago Title--a well-respected, conservatively run title insurer--to be swallowed by its smaller rival, Fidelity National, whose investment interests also include restaurant chains, a technology firm and an investment banker.

Observers also raised concerns about how Fidelity National--whose stock price has dropped more than 50% during the last year--would pay for Chicago Title. An all-stock deal would significantly dilute the value of Fidelity’s existing shares, analysts warned.

But Cengiz Searfass, an analyst at New York investment firm West Broadway Partners, said that Fidelity National Chairman William P. Foley II may be planning to leverage Chicago Title’s strong balance sheet to help fund a cash and stock purchase. “Chicago has no debt and a lot of cash,” Searfass said. Several analysts said they would have expected Chicago to be the buyer.

“I would have thought it would be the other way around,” Searfass said. Fidelity shares fell 6 cents Friday to close at $17.44 on the New York Stock Exchange. Trading in both firms was temporarily halted in the afternoon pending release of Chicago Title’s statement.