Title insurance giant Fidelity National Financial Inc. said Tuesday, May 28, it would bring one-time subsidiary Lender Processing Services Inc. back under its roof in a deal valued at $2.9 billion.
Terms of the deal call for Jacksonville, Fla.-based Fidelity to pay $33.25 in cash and stock for Lender, a premium of 25% over the target's closing price during the 60 days prior to word leaking that the two sides were considering a deal. Fidelity will pay half of the purchase price in stock and the remainder in cash, subject to certain adjustments.
At closing, Fidelity said it would combine its ServiceLink unit with Lender into a new holding company and sell a 19% interest in that new company to funds associated with Thomas H. Lee Partners LP for $381 million in cash.
The Fidelity-Lender deal includes a go-shop period effective through July 7, with Fidelity due a 1.25% breakup fee or higher under certain circumstances should the deal not close.
Lender, which is also based in Jacksonville, makes software that helps lenders manage their mortgage and related businesses. Fidelity spun out the business, which counts mortgage giants Wells Fargo & Co. and JPMorgan Chase & Co. as customers, in 2008.
Fidelity in a statement said that as the mortgage industry continues to recover from the housing bubble burst, large lenders are increasingly interested in working with just a handful of large vendors able to offer a range of products and services.
"This combination will create a larger, broader, more diversified and recurring revenue base for FNF and makes us the nation's leading title insurance, mortgage technology and mortgage services provider," Fidelity chairman William P. Foley II said. "We believe there are meaningful synergies that can be generated through the similar businesses in centralized refinance and default related products, elimination of some corporate and public company costs and the shared corporate campus."
Fidelity said it believes it can cut $100 million in costs from the combined operations. Foley told investors on a conference call that the company exceeded average synergy targets by 135% -- or that $135 million was not an unrealistic expectation for total synergies.
During the call, Fidelity officials reassured investors that litigation risks surrounding Lender had been well assessed.
Fidelity has been embroiled in controversy around unethical business practices during the U.S. housing crash and credit crisis. This month the mortgage servicing company agreed to pay $14 million to settle claims that it misled investors about its business practices, such as the automatic signing of documents linked to housing foreclosures.
In January it was announced that Lender would pay $127 million to settle charges by 46 states that it forged documents used to foreclose on homeowners. The following month it paid an additional $35 million to settle an investigation into its mortgage document signing practices and entered into a nonprosecution agreement with the U.S. Department of Justice.
"We were very concerned about litigation over the past few years, but after due diligence are comfortable that the bulk of risk is behind the company, with some exceptions," Foley said.
Bank of America Merrill Lynch and JPMorgan Securities LLC are acting as financial advisers to Fidelity and are providing committed financing on the transaction. Weil, Gotshal & Manges LLP's Michael Aiello, Sachin Kohli, Ryan Taylor, Megan Pendleton, A.J. Frey, Angela Fontana, Allison Liff, Lucas Spivey, Jennifer Bensch, Jordan Fasbender, Marc Silberberg and Chayim Neubort are providing legal counsel.
Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. represented Lender. Fried, Frank, Harris, Shriver & Jacobson LLP's Abigail Bomba and Philip Richter represented Goldman Sachs.
Cooley LLP's Tom Hopkins, Ian Smith, Lesse Castleberry, Stanley Barsky, Yueting Liang, Dan Espinoza, Erin Walczewski and Clark Chu advised FNF on two aspects of the deal: FNF will combine its $875 million ServiceLink business with Lion in a new consolidated holding company named Black Knight Financial Services Inc. and FNF will sell a 19% minority equity interest to THL for approximately $381 million in cash with FNF retaining an 81% ownership interest in the new holding company.
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