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Fidelity National, Stewart call off $1.2 billion merger after FTC moved to block deal

Stewart also names new CEO

Just days after the Federal Trade Commission tapped the brakes on the $1.2 billion merger of Fidelity National Financial and Stewart Information Services, the deal that would have combined two of the country’s largest title insurance providers is now dead.

The two companies announced Tuesday that they are calling off the deal that would have seen Fidelity buy Stewart for $1.2 billion.

The deal was initially announced in March 2018, and the companies said at the time that they expected to complete the deal in either the first of second quarter of this year.

The deal hit a stumbling block earlier this year when the New York Department of Financial Services said that it did not approve of Fidelity National’s acquisition of Stewart’s New York title operation.

But that was nothing compared what happened late last week, when the FTC announced it was moving to block Fidelity’s acquisition of Stewart, stating the deal would “substantially reduce competition” for title insurance and other services provided by the two companies.

The FTC claimed that reducing the number of large title insurance providers from four to three (with Fidelity and Stewart making up a “Big 4,” along with   First American Title Insurance Company and Old Republic National Title Insurance Company) would be bad for the market and bad for 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 announcing its decision to block the deal.

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

FTC Bureau of Competition Director Bruce Hoffman said having that much consolidation in the market could potentially limit the price competition in the market.

“Competitive title insurance and title information markets are essential to providing Americans affordable and high-quality title insurance products,” Hoffman said. “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.”

When the FTC announced its decision, Stewart said it was “disappointed” and was working with Fidelity to figure out what to do next.

“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.”

As it turns out, the near future was just a few days later, and the next steps are calling off the merger entirely.

Hoffman, on behalf of the FTC, welcomed the decision.

“Today’s announcement from Fidelity National Financial, Inc. and Stewart Information Services Corporation that they will abandon their proposed transaction is good news for everyone who requires title insurance when purchasing real estate in the United States,” Hoffman said in a statement. “These customers will continue to benefit from vigorous competition for title insurance underwriting and title information services.”  

As a result of the decision to cancel the acquisition, Fidelity will pay Stewart $50 million in a reverse break-up fee that the companies agreed to if the deal fell through for any reason.

Despite the deal’s cancellation, Fidelity is still the largest player in the title insurance space.

Stewart, meanwhile, will now be moving forward as an independent company as opposed to one of Fidelity’s brands, but the company will be doing so under new leadership.

In conjunction with the merger cancellation announcement, Stewart announced that it is naming a new CEO.

According to the company, Frederick Eppinger, who serves on Stewart’s board of directors, will become CEO immediately, while Matthew Morris, who has served as CEO since 2011, will remain with the company and take over as president.

John Killea, who has been president since 2017, will remain general counsel and chief legal officer, roles he has held since 2008 and 2012, respectively.

“While we were disappointed with the FTC’s decision regarding Stewart’s combination with Fidelity, we are well-positioned to execute on a standalone strategic plan built around growth and profitability,” said Thomas Apel, Stewart’s chairman of the board.

“The actions we have taken today are designed to enhance our strength, focus our company on the opportunities before us and build a leadership team with the best mix of experience and expertise to drive value creation,” Apel added. “To further support the new direction, we will be actively reviewing the board’s makeup to ensure the appropriate mix of diversity as well as operational and growth-oriented experience.”

Eppinger brings more than 35 years of experience in finance and strategic marketing in the insurance industry, to his new role at Stewart. Eppinger has been a Stewart director since 2016. He most recently served as president, CEO and director for The Hanover Insurance Group until his retirement in 2016.

“Fred’s proven track record of aggressively growing a company and increasing shareholder value while he was CEO at Hanover Insurance Group, coupled with his passion for Stewart’s success, makes him ideally suited to serve as CEO at this critical juncture,” Apel said. “We also are pleased that Matthew Morris will remain with the company as president, working with Fred and our leadership team to accelerate our strategic plan.”

According to the company, its board has “clearly determined that leveraging the company’s strong brand, financial position, and valued employees to grow the organization as a standalone entity will create the greatest shareholder value.”

And the company believes Eppinger is the right person to lead it toward its stated goal.

“I am confident in the strength of the Stewart brand and the people behind it, and look forward to working with our talented team to forge a legacy of a growth and performance-oriented culture that delivers exceptional value creation as a standalone company,” Eppinger said. “I believe the future is bright for Stewart. I see great potential in our ability to enhance performance while leveraging the core strengths of Stewart, its culture and people.”

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