The title insurer, LandAmerica Financial Group agreed today to sell its three land title subsidiaries to Fidelity National Financial Inc., of Jacksonville, Fla., for almost $300 million and file for bankruptcy.
The subsidiaries are the underwriters Lawyers Title Insurance Corp., Commonwealth Land Title Insurance Company and United Title Capital Insurance Co.
Lloyd Osgood, a spokesperson for the company said along with selling the title companies to Fidelity, the firm has to file Chapter 11 for its holding company.
The Richmond, Va.-based firm had announced it was going to merge with Fidelity but after a due diligence investigation, "they opted out," she said.
"The bankruptcy allows us to take the debt at the holding co level and go through an orderly process to resolve it. Originally Fidelity was going to take on our debt," she explained.
The abrupt action was prompted by a decision last Friday by Fidelity to withdraw its earlier offer to merge with LandAmerica, based in Richmond, Va. after two weeks of due diligence.
LandAmerica was affected by the severe downturn in housing sales, which has impacted all title insurers' revenues.
Under the terms of the latest deal, Fidelity National subsidiary Chicago Title Insurance Company will acquire Commonwealth for $158.6 million and Fidelity National Title Insurance Company will acquire Lawyers and United for $139.4 million, for a total purchase price of $298 million.
Fidelity said the latest deal could close as early as late December.
After the earlier deal was withdrawn, Fitch Ratings responded by saying that "LandAmerica faces serious liquidity constraints now that the acquisition plans have fallen through," and the stock plunged 97 percent from early November until today.
Ironically, Fidelity is agreeing to pay more for the title subsidiaries than it would have in acquiring the holding company. The value of the deal when first announced Nov. 6, was $130 million.
The deal was rescinded after LandAmerica reported Nov. 10 that its third-quarter net loss widened to $39.45 a share from $1.28 in the year-earlier period. Revenue fell 30 percent to $631.8 million.
The figures reflected a $462 million non-cash write-down of goodwill and other items; the company also reserved $90 million for "adverse claims development" and charged $12 million for severance and other cost cuts.
LandAmerica also had said that as of Sept. 30, the economic downturn had pushed the company out of compliance with certain covenants in its accords with lenders. It said then that it was in talks with the lenders to obtain a waiver and amend those accords.
In announcing the decision to acquire the subsidiaries today, Fidelity National Chairman William Foley II said, "The acquisition of these established title insurance franchises is an exciting opportunity for FNF."
"We have always had great respect for the Commonwealth, Lawyers and United commercial and residential operations and all three underwriters will emerge from the LFG bankruptcy proceedings as much stronger, stable and more valuable companies," Mr. Foley added.
"To the extent that it is legally permissible, we expect to immediately begin meeting with the Commonwealth, Lawyers and United managers, employees, agents and customers throughout the country to ensure a smooth transition after closing, as we welcome these underwriters and their employees, agents and customers into the FNF title insurance family," he added.
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