A leading title insurer,
Fidelity National Financial Inc.
) amended its consideration mix associated with the acquisition
Lender Processing Services Inc.
) announced on May 28, 2013.
The purchase consideration equated to $2.9 billion or $33.25 per
share. Initially at the time of announcement, Fidelity sought to
pay 50% of the purchase consideration in cash and the remaining
50% in shares of FNF common stock. At present, the company
decided to increase the cash component and simultaneously
decrease the stock component, both by $500 million. This
translates into a proportion of cash payment of approximately 67%
and that of stock payment of 33%.
Out of the $500 million adjustment, Fidelity will provide $300
million directly. The remaining $200 million will be provided
from funds affiliated with Thomas H. Lee Partners, L.P. ("THL").
The acquisition is expected to culminate in the fourth quarter of
2013, subject to regulatory approval. Following the culmination
of the deal, the ServiceLink business of Fidelity will be merged
with Lender Processing to form a new consolidated holding
Initially, Fidelity was to retain 81% stake in the new holding
company and sell the remaining 19% for a cash consideration of
$381 million to the funds associated with Thomas H. Lee Partners,
L.P. Pursuant to the adjustments, Fidelity will retain 71% stake
in the new consolidated holding company and sell 29% for a cash
consideration of $581 million to THL.
As per the May 28 announcement, Fidelity's shares have been
valued at $25.489 per share, translating to a fixed exchange
ratio of 0.65224 shares for each LPS share. As a result Fidelity
is expected to issue 57.4 million shares to LPS shareholders,
which represents 20.151% of Fidelity's outstanding shares.
The increase in cash consideration has led to an alteration in
the fixed exchange ratio to 0.42948. Concurrently, Fidelity will
issue nearly 37.8 million shares to LPS shareholders, which
represents 14.2% of Fidelity's outstanding shares.
However, this is not the end. The company has kept an option open
to further increase its cash portion of the consideration if
Consideration mix that accounts for a majority portion to be paid
in stocks brings volatility to the entire deal. Now, the increase
in the cash component and reduction in stock component in the
aforementioned deal will reduce the LPS stockholders' exposure to
stock price volatility of FNF. This is expected to infuse more
stability to the amount receivable by LPS shareholders. The
lesser shares issued will lower the dilution of FNF share
We expect the addition of Lender Processing in Fidelity's
portfolio to aid the company to generate higher revenues and add
value to all Fidelity shareholders. In the first quarter of 2013,
Fidelity's revenues increased 72.3% year over year to $2.1
billion. We expect the acquisition to ramp up revenues further.
The long term sales growth for the company is projected at
Fidelity currently carries a Zacks Rank #2 (Buy). Among others
in the industry,
Montpelier Re Holdings Limited
) carry a favorable Zacks Rank #1 (Strong Buy) and appear
FIDELITY NAT FI (FNF): Free Stock Analysis
LENDER PROC SVC (LPS): Free Stock Analysis
MARKEL CORP (MKL): Free Stock Analysis Report
MONTPELIER RE (MRH): Free Stock Analysis
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