Fidelity National Financial Inc. has the green light from Nebraska insurance regulators and a federal bankruptcy court in Virginia to buy LandAmerica Financial Group Inc.’s two largest underwriting subsidiaries, Lawyers Title Insurance Corp. and Commonwealth Land Title Insurance Co., for $282 million.
Should antitrust regulators approve the deal, Fidelity would surpass First American Corp. as the nation’s biggest title insurance underwriter.
But the sale, which Fidelity says must close by Dec. 22, is opposed by the two smallest of the "big five" title insurers — Stewart Title Guaranty Co. and Old Republic International Corp. — who argue that the resulting industry consolidation could restrict competition.
Lawyers representing LandAmerica’s creditors had also asked the bankruptcy court to delay the sale for seven to 10 days, saying a better offer than Fidelity’s could be in the works (see story).
Should Fidelity complete its acquisition of Lawyers, Commonwealth and a third LandAmerica underwriting subsidiary, United Capital Title Insurance Co., it would control 45 percent of the U.S. title insurance business, Old Republic said in a court filing objecting to the sale.
According to the American Land Title Association, First American Corp. had the largest share of the U.S. title insurance business during the first nine months of the year (29 percent), followed by Fidelity (26 percent), LandAmerica (19 percent), Stewart (12 percent) and Old Republic (6 percent).
With Fidelity and First American together controlling 74 percent of the U.S. title insurance business, the companies might use their "near monopoly power" to artificially inflate prices, lawyers for Old Republic said.
That’s especially true in states where Fidelity and First American have an even bigger combined market share, Old Republic maintains. Fidelity, First American and their subsidiaries would together control more than three quarters of the title insurance business in seven big states: New York, California, Washington, Arizona, Michigan, Illinois and Pennsylvania, lawyers for Old Republic said.
Old Republic complained that since November 2007 the company and several of its subsidiaries have acquired 10 percent of LandAmerica’s outstanding common stock, but that neither LandAmerica nor its investment bankers contacted the company about selling the underwriting subsidiaries to Old Republic.
Stewart Title, which has put forward a competing $256 million offer for Lawyers and Commonwealth, maintains there is a "very real possibility" that the Department of Justice or Federal Trade Commission will block the sale or at least delay it in order to study its impact on competition.
Lawyers for Stewart had also argued that the Nebraska Department of Insurance was likely to stand in the way of a sale of Lawyers and Commonwealth. On Monday, Nebraska regulators removed themselves as an obstacle to the sale, ruling that Fidelity and Stewart were both in strong enough financial condition to take over LandAmerica’s largest underwriters.
Both companies made commitments to Nebraska regulators to contribute $157 million to recapitalizing Lawyers and Commonwealth, which LandAmerica had relied on to cover losses at a troubled subsidiary that facilitates 1031 property exchanges.
In approving the terms of a sale of Lawyers and Commonwealth to Fidelity, Nebraska regulators said that industry consolidation must be weighed against the "lack of guaranty fund protection for current (Lawyers and Commonwealth) policyholders nationwide and the risk of harm to them."
The Nebraska Department of Insurance made similar findings in approving a sale to Stewart. Fidelity has also agreed to pay $16 million for LandAmerica underwriter United Capital Title Insurance Co., a deal subject to approval by California regulators.
For its part, LandAmerica says the sale of its underwriting subsidiaries must happen quickly or the companies will be worthless.
After Nebraska regulators placed Commonwealth and Lawyers in receivership, Standard & Poor’s cut its rating on the companies, and four of the top five mortgage originators either stopped accepting their title insurance policies at closings or imposed "significant restrictions," said LandAmerica Chief Financial Officer G. William Evans in a court affidavit.
The only reason many banks continue to accept the companies’ policies is that for now Fidelity is reinsuring them, Evans said. The reinsurance agreements with Fidelity, which expire Dec. 28, have not prevented the loss of more than 170 customers since LandAmerica filed for Chapter 11 bankruptcy protection on Nov. 26, he said.
"Our employees and executives have spent countless hours with bankers and lenders attempting to explain the present situation of the underwriting companies and the ample protection now provided by their arrangements with Fidelity, but in many cases, the lenders are simply too uncertain about the situation to take any risks," Evans said.
LandAmerica has lost $9 million in premiums on canceled commercial policies alone, Evans said, and there are fears that many employees "will simply cross the street and start working for our competitors" if a sale can’t be closed. Once the employees have established relationships at a new employer, "there will be no reason for them to return" if the companies are sold at a later date.
Because a sale of the underwriting companies to Fidelity "is the only viable alternative" to their "disappearance from the market," LandAmerica is optimistic that the FTC will allow a 15-day waiting period to expire on Dec. 18, allowing the sale to go through, attorneys for the company said.
The waiting period for review of the sale under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 is set to expire at midnight Thursday. If the FTC doesn’t ask for more information by then, antitrust regulators will have signalled their approval of a sale.
Attorneys for LandAmerica claim Stewart Title’s offer is "not a meaningful alternative" and that they suspected the company was merely seeking "to be a spoiler" of a sale.
LandAmerica creditors whose recoveries are at risk "have joined in supporting a transaction to (Fidelity) on an expedited timetable," attorneys for the company said, because they "realize hat no other party can consummate a meaningful transaction in time."
Until recently, Stewart had denied LandAmerica’s requests for reinsurance arrangements, and once Fidelity’s reinsurance agreements expire on Dec. 28 the company expects "a precipitous drop" in the number of lenders willing to accept its policies, attorneys for LandAmerica said.
After hearing those and other arguments Tuesday, the U.S. Bankruptcy Court for the Eastern District of Virginia signed off on LandAmerica’s proposal for an expedited sale of Lawyers and Commonwealth to Fidelity.
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