Source: Fidelity National Financial
Fidelity National Financial, Inc. (FNF), a leading provider of title insurance, mortgage services and diversified services, and Lender Processing Services, Inc. (LPS), a leading provider of integrated technology, services, data and analytics to the mortgage and real estate industries, today announced the signing of a definitive agreement under which FNF will acquire all of the outstanding common stock of LPS for $33.25 per common share, for a total equity value of approximately $2.9 billion.
Under the terms of the definitive agreement, FNF will pay 50% of the consideration for the LPS shares of common stock in cash and 50% in shares of FNF common stock, subject to adjustment as described below. The purchase price represents a 19% and 25% premium, respectively, to the prior 30-day and 60-day average closing prices for LPS' common stock through May 22, 2013, the last trading day before media reports regarding a potential transaction between FNF and LPS.
At closing, FNF will combine its ServiceLink business with LPS in a new consolidated holding company and sell a 19% minority equity interest in the new consolidated holding company to funds affiliated with Thomas H. Lee Partners, L.P. for approximately $381 million in cash. FNF will retain an 81% ownership interest in the new consolidated holding company.
Under the definitive agreement, FNF's shares of common stock have been valued at $25.489 per share (the "Reference Price"), representing a fixed exchange ratio of 0.65224 shares of FNF common stock for each share of LPS common stock. Based on the Reference Price, FNF expects to issue approximately 57.4 million shares of FNF common stock to LPS common stockholders, representing approximately 20.151% of FNF's pro-forma, fully diluted outstanding shares.
If FNF's average common stock price at closing is greater than $24.215, the exchange ratio remains fixed at 0.65224 per share of FNF common stock and LPS stockholders will receive the benefit of any price appreciation on the FNF common stock portion of the purchase consideration. If FNF's average common stock price at closing is between $20.00 and $24.215 per share, FNF will increase the number of shares of FNF common stock to be received by LPS stockholders such that LPS stockholders receive a minimum of $15.794 per share in value on the stock portion of the consideration, or $32.419 per share in total. If FNF's average common stock price at closing is less than $20.00, the exchange ratio will bnge ratio will be fixed at 0.7897 per share of FNF common stock, in which event LPS will have a right to terminate the transaction. Additionally, on or before three trading days prior to the anticipated date of effectiveness of FNF's registration statement on Form S-4, FNF has the option to increase the cash portion of the consideration from $16.625 per share of LPS common stock up to $33.25 per share of LPS common stock with a corresponding decrease in the stock portion of the merger consideration as provided for under the terms of the merger agreement, in which case the exchange ratio will be adjusted to reflect the new consideration mix. However, if FNF elects to increase the cash portion of the consideration and FNF's average common stock price at closing is greater than $26.763, then the exchange ratio will be adjusted to reflect the increased value that would have been received at closing without any change in consideration mix.
The acquisition agreement includes a "go-shop" period effective through July 7, 2013, during which LPS is permitted to actively solicit alternative acquisition proposals from third parties. The acquisition agreement contains a break-up fee equal to approximately 1.25% of the total equity value of $2.9 billion payable to FNF if LPS terminates the acquisition agreement based on receiving a superior proposal during the "go-shop" period. The acquisition agreement also contains a break-up fee equal to approximately 2.5% of the total equity value if LPS fails to hold a shareholders meeting or terminates the agreement after the expiration of the "go-shop" period because it received a superior proposal after the expiration of the "go-shop" period. In addition, the acquisition agreement includes a break-up fee equal to approximately 2.5% of the total equity value if (i) a competing offer for LPS is made public by a third party, (ii) the acquisition agreement is terminated either as a result of the LPS shareholders voting against the transaction or the date of March 31, 2014 being reached and the LPS shareholders meeting not having been held or if LPS breaches its obligations which results in the failure of a closing condition and (iii) within twelve months after termination, LPS enters into or consummates any alternative transaction.
"We are excited to welcome LPS and its market-leading technology and services to the FNF family," said FNF Chairman William P. Foley, II. "We have significant experience and familiarity with LPS from our previous ownership of these businesses. 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. 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. We have set a target of $100 million for cost synergies and are confident that we can meet or exceed that goal. Including those cost synergies, the transaction is 11.3% accretive to pro-forma 2012 net earnings. We also expect the transaction to be meaningfully accretive to future earnings and we look forward to creating significant value for our shareholders through this strategic transaction."
"As the mortgage industry continues to face increasing regulation, participants in the industry are seeking out those strategic partners who offer quality, comprehensive solutions, a strong balance sheet and a commitment to innovation," said Hugh Harris, President and CEO of LPS. "The combined LPS and FNF offer comprehensive technology and services to address many of the challenges facing the industry today and the best solutions to support future success."
The transaction is subject to approval by LPS and FNF stockholders, approvals from applicable federal and state regulators and satisfaction of other customary closing conditions. Closing of the transaction is currently expected to occur in the fourth quarter of 2013.
Bank of America Merrill Lynch and J.P. Morgan Securities LLC acted as financial advisors and are providing committed financing to FNF on the transaction. Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. served as financial advisors to LPS.