The nation's largest title insurer, Irvine-based Fidelity National Financial Inc., said Wednesday that it has agreed to pay $1.05 billion in cash and stock for a unit of Alltel Corp. that processes almost half of the nation's mortgages.
The acquisition would further Fidelity National's long-term strategy of becoming a diversified real estate company that provides an array of products and services such as title insurance and mortgage processing.
Analysts say that would help Fidelity National to expand various units and to better handle fluctuations in the real estate market, such as a slowdown in mortgage refinancings that is projected for this year.
Most Wall Street analysts were surprised by the deal, saying they had expected Fidelity National to announce just its quarterly and annual earnings, which rose sharply on the strength of the refinancing business.
Alltel, a Little Rock, Ark.-based telephone company with 12 million customers and operations in 26 states, agreed to sell its financial services division, called AIS, to focus on telecommunications. About 5,500 workers would join Fidelity National, which has nearly 20,000 employees nationwide. The AIS workers are not expected to relocate to California.
"This is a very good move" for Fidelity National, said Geoffrey Dunn, an analyst with Keefe, Bruyette & Woods. "It fits their strategy of becoming a real estate solutions company. This Alltel division has a strong reputation and presence among the top 50 lenders in the country."
Fidelity said it has enough cash reserves and can tap bank credit to fund the $775-million cash portion of the deal. It then would issue $275 million worth of stock to Alltel, or about 8.5 million Fidelity shares.
On Wednesday, Fidelity National shares rose 35 cents to close at $32.86 in New York Stock Exchange trading.
"They paid a fair price," said Robert Napoli, an analyst with U.S. Bancorp Piper Jaffray who follows the company. But he said there are some challenges ahead. "Can they grow that business?"
Dunn said the deal, which is expected to close by the end of the first quarter, would add to Fidelity National's earnings in the first year and would allow the company to offer a one-stop service in which customers can buy multiple products.
"The opportunity to generate future growth through the integration of our products and services into AIS' delivery platforms is compelling," said William P. Foley, Fidelity National's chairman and chief financial officer. Foley, like most of the firm's top executives, works in corporate offices in Santa Barbara, although the firm is headquartered in Irvine.
Fidelity National's fourth-quarter results were buoyed by the strong market for refinancings and home sales. Its net income rose 90% to $174.9 million, or $1.77 a share, from $92.3 million, or 95 cents, a year earlier. Revenue for the period increased 40% to $1.59 billion, from $1.13 billion.
For 2002, the company said net income rose 74% to $531.7 million, or $5.38 a share, compared with $305.5 million, or $3.15, for 2001. Revenue climbed 31% to $5.08 billion, from $3.87 billion.