In an effort to strengthen mortgage services business,
America's largest title insurance company,
Fidelity National Financial Inc.
) recently inked a deal to acquire
Lender Processing Services Inc.
) for $2.9 billion or $33.25 per share.
Florida based Lender Processing is a leading provider of
comprehensive technology solutions and services, data and
analytics to the paramount mortgage lenders and investors of the
The deal is expected to culminate in the fourth quarter of 2013.
Fidelity will pay 50% of the purchase consideration in cash and
the remaining 50% in shares of FNF common stock. The financial
position of the company is strong enough to support the
Following the culmination of the deal, the ServiceLink business
of Fidelity will be merged with Lender Processing to form a new
consolidated holding company. Fidelity will 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.
As per the deal, Fidelity's shares are 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.
According to the agreement clauses, if Fidelity's average
common stock price at closing is higher than $24.215, there will
be no change in the 0.65224 exchange ratio and Lender
Processing's shareholders will be benefited from any increase in
share price of FNF's common stock portion of the purchase
If the average common stock price at closing lies within
$20-$24.215, the company will increase the number of shares
issued to Lender Processing's shareholders so that LPS share
holders receive a minimum of $32.419 per share in total. Again if
the average common stock price at closing is less than $20.00,
the exchange ratio will be fixed at 0.7897 and LPS will be
allowed to nullify the agreement. However, if Fidelity pays a
greater amount of the consideration in cash and the average
common stock price at closing is higher than $26.763, the
exchange ratio will be fine-tuned to reflect the increased value
received at closing without altering the consideration mix.
Per the agreement, Lender Processing also has an option to
explore other acquisition proposals from third parties effective
through Jul 7, 2013.
The mortgage industry is stressed by increasing regulations.
Fidelity is no exception. The combination of FNF and LPS will
address these challenges faced by the industry and provide
comprehensive and best solutions to the problems.
Following the acquisition, the company will emerge as a
primary provider of title insurance, mortgage technology and
mortgage services in the U.S.
Additionally, Fidelity National expects the acquisition to
generate cost synergies of more than $100 million as well as be
accretive to future earnings. Moreover, addition of Lender
Processing Services to its portfolio will ensure a diversified as
well as a recurring revenue base for Fidelity National. 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
Fidelity has undertaken a number of acquisitions and
partnerships in recent times to strengthen its portfolio. In this
line, in Feb 2013, Digital Insurance, a wholly owned subsidiary
of Fidelity, announced a partnership with CUNA Mutual Group, a
financial service provider dedicated to catering to the members
and customers of employee unions.
Fidelity currently carries a Zacks Rank #2 (Buy). Among others
in the industry,
American Safety Insurance Holdings Ltd
Global Indemnity plc
) carry a favorable Zacks Rank #1 (Strong Buy) and appear
AMER SAFETY INS (ASI): Free Stock Analysis
FIDELITY NAT FI (FNF): Free Stock Analysis
GLOBAL INDEMNTY (GBLI): Free Stock Analysis
LENDER PROC SVC (LPS): Free Stock Analysis
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