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FTC moves to block $1.2 billion merger of Fidelity National and Stewart

Alleges merger would "substantially reduce competition" in title insurance market

The $1.2 billion merger of Fidelity National Financial and Stewart Information Services, two of the country’s largest title insurance providers, already had a major hurdle to clear after the New York Department of Financial Services said earlier this year that it does not approve of Fidelity National’s acquisition of Stewart’s New York title operation.

But now, the companies have a much bigger problem on their hands: the Federal Trade Commission.

The FTC announced late last week that it is moving to block Fidelity’s acquisition of Stewart, claiming that the deal would “substantially reduce competition” for title insurance and other services provided by the two companies.

More than a year ago, Fidelity announced that it reached an agreement to acquire Stewart for $1.2 billion.

According to the FTC, Fidelity and Stewart are among the four largest title insurance providers in the country, along with First American Title Insurance Company and Old Republic National Title Insurance Company, and reducing the number of large providers from four to three could be harmful to consumers.

“The ‘Big 4,’ as they are known in the industry, have the financial strength, commercial expertise, and national footprint to underwrite large commercial transactions with a liability amount in excess of $20 million, according to the complaint,” the FTC said in a statement

According to the FTC, on a national level, the “Big 4” make up more than 85% of all title insurance sales, and if the merger is completed, the combined company would have more than 43% of sales nationwide.

As the FTC states, Fidelity is already the largest of the Big 4, having gained that position through a series of acquisitions, and buying out one of its three largest competitors would only increase the company’s hold on the market.

“Competitive title insurance and title information markets are essential to providing Americans affordable and high-quality title insurance products,” said FTC Bureau of Competition Director Bruce Hoffman. “The merger threatens to continue a trend of consolidation in these markets. Our action seeks to preserve important and beneficial competition that plays out every day in every real estate transaction across the United States.”

According to the FTC, the proposed acquisition would reduce the number of “significant competitors” offering underwriting for large commercial transactions from four to three and eliminate “significant head-to-head competition” between Fidelity and Stewart in 45 states and Washington, D.C.

One of the main issues, according to the FTC, is Stewart’s practice of competing on price and removing Stewart from the equation would allow Fidelity to hold firm to its pricing.

“The complaint alleges that Fidelity and Stewart are close competitors for large commercial transactions, and this competition results in price and non-price benefits for customers,” the FTC said. “Among the Big 4, Stewart has shown a willingness to undercut the other underwriters, and has developed a reputation for finding creative and customer-friendly ways to defer costs. Absent competition from an independent Stewart, Fidelity will not need to compete as aggressively on price, coverage, underwriting requirements, or service as it does today.”

Beyond that, the FTC also expressed concern about Fidelity and Stewart’s ownership of title plants, which, according to the FTC, are “databases of detailed information about the chain of title to individual properties, indexed to facilitate efficient title searches for underwriting purposes.”

The FTC claims that there are “at least 6 local areas” that will be harmed by eliminating competition between the title plants that Fidelity and Stewart own separately. Additionally, the FTC claims that there are another 8 localities that would be harmed by giving Fidelity a larger ownership stake in certain title plants that are currently jointly owned.

In response to the FTC’s action, Stewart said that it is “disappointed” and is working with Fidelity to determine their next steps.

“While we are disappointed with this outcome and disagree with the FTC’s decision, we are reviewing the lawsuit with FNF in the context of the parties’ rights and obligations under our merger agreement,” Stewart said in a statement. “We will communicate our next steps to our stakeholders in the near future as soon as this review is complete.”

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