Fidelity National Financial, Inc . FNF has agreed to acquire Stewart Information Services Corporation STC for $1.2 billion in a cash-stock deal. The transaction is expected to culminate in the first or second quarter of 2019, subject to closing conditions.
The purchase is likely to help Fidelity National chase its goal of emerging as an industry leader in underwriting, customer service and operational expertise. The acquisition is also in tandem with the company's strategy of operating multiple title insurance brands under one roof.
Following this announcement, shares of both Fidelity National and Stewart Information gained 2.9% and 4.6%, respectively, in the last trading session. The Purchase Consideration
The buyout will be made equally in cash and shares of Fidelity National.
Each shareholder of Stewart Information Services will receive $25 in cash and 0.6425 common shares of Fidelity National. However, shareholders of the acquired company can also opt for $50 in cash or 1.285 common shares of the acquiring company as an alternative purchase consideration.
The acquisition price reflects a 23% premium to Stewart Information Services' closing stock price on Mar 16, 2018
Nonetheless, Fidelity National will have to pay a reverse break-up fee of $50 million to Stewart Information Services in case the acquisition did not materialize. Financing the Deal
Fidelity National will deploy its cash in hand, pursue debt financing and issue common stock to shareholders of Stewart Information Services to finance the deal. Rationale Behind the Transaction
In 2017, Stewart Information Services announced to review strategic alternatives and agreed to be acquired by Fidelity National.
Fidelity National enjoys the status of a leading provider of title insurance and transaction services to the real estate and mortgage industries. Thus, the company can leverage its portfolio with expertise to enhance its own operations.
While Stewart Information Services is a global real estate services company and has carved a niche for itself in the title insurance industry. Integration of Stewart Information Services into Fidelity's portfolio will help the acquirer add capabilities to its portfolio.
Fidelity National estimates at least $135 million in operational cost synergies from the buyout. The company also anticipates the acquisition to be at least 15% accretive to pro forma 2017 adjusted net earnings per share at the targeted operational cost synergy target.
Both Fidelity National and Stewart Information Services carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here
. Inorganic Growth
Fidelity National has been effecting strategic buyouts to fortify title insurance business. Last year, the company acquired 10 title and escrow companies for $130 million. The company stays focused to add more title in escrow companies in its portfolio this year.
The company has also been working toward building a real estate technology platform.
Shares of Fidelity National have outperformed the industry in a year. The stock has surged 48.9% compared with the industry
's 18.5% rally.
Insurers Following Suit
Walking the organic route, ramping up one's operational profile seems a well-adopted strategy among insurers as acquisitions create a huge rage in the insurance domain. In March, AXA Group has inked an acquisition deal to buy XL Group Ltd XL for $15.3 billion in cash whereas Evergreen Parent has announced to take over 45% of AmTrust Financial Services, Inc. AFSI for $2.7 billion.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report XL Group Ltd. (XL): Free Stock Analysis Report Stewart Information Services Corporation (STC): Free Stock Analysis Report AmTrust Financial Services, Inc. (AFSI): Free Stock Analysis Report Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research