Fidelity National Financial, Inc., has agreed to acquire title insurer Stewart Information Services Corporation for $50 per share of common stock, subject to potential adjustment, representing an equity value of approximately $1.2 billion.
In a statement, Fidelity said that the consideration will be paid 50 percent in cash and 50 percent in Fidelity common stock. Stewart stockholders also will have the option to elect to receive their consideration in all cash or all stock, subject to pro rata reductions to the extent the cash or stock option is oversubscribed.
The Fidelity common stock component will be subject to a fixed exchange ratio based on Fidelity's volume weighted average price ("VWAP") for the 20 trading days prior to the signing of the merger agreement.
For those Stewart stockholders who elect to receive all Fidelity stock, the exchange ratio will be equal to 1.2850, subject to potential adjustment and proration to the extent the stock option is oversubscribed.
Fidelity said that it intends to achieve at least $135 million in operational cost synergies and expects the acquisition to be at least 15 percent accretive to pro forma 2017 adjusted net earnings per share at that operational cost synergy target.
Fidelity's chairman, William P. Foley, II, said, "The venerable Stewart brand has a long and respected history in the title insurance industry and we see tremendous potential in working with the Stewart management team to invest in and grow the Stewart brand on a national basis as part of our long-time, successful strategy of operating multiple title insurance brands under the [Fidelity] umbrella."
"We are very familiar with Stewart in the marketplace and see multiple areas where we can assist and accelerate Stewart's growth plans," said Fidelity's chief executive officer, Raymond Quirk. "We also believe there are significant operational efficiencies we can bring to bear by leveraging [Fidelity's] shared services infrastructure that will provide meaningful long-term value creation opportunities for our shareholders."
Under the terms of the merger agreement, if the combined company is required to divest assets or businesses for which revenues exceed $75 million up to a cap of $225 million in order to receive required regulatory approvals, the purchase price will be adjusted down on a pro-rata basis to a minimum purchase price of $45.50 per share of common stock.
Fidely said that it currently intends to fund the $1.2 billion purchase price through a combination of cash on hand, debt financing, and the issuance of Fidelity common stock to Stewart stockholders. Including the assumption of $109 million of Stewart debt, pro forma debt to total capital is expected to be no more than approximately 20 percent at the close of the transaction.
The closing of the transaction is subject to certain closing conditions, including Stewart stockholder approval, federal and state regulatory approvals and the satisfaction of other customary closing conditions. Fidelity said that it expects closing in the first or second quarter of 2019.