Fidelity National Financial Inc. (FNF:US), the title insurer that also has restaurant businesses and an auto-parts company, hired JPMorgan Chase & Co. (JPM:US) to review possible divestitures of assets as the firm narrows its focus.
The insurer will consider spinoffs and sales of portfolio company investments, Jacksonville, Florida-based Fidelity National said today in a statement. The company holds stakes in vehicle-component maker Remy International Inc. (REMY:US), human-resources firm Ceridian Corp. and American Blue Ribbon Holdings LLC, the operator of restaurants including O’Charley’s, Max & Erma’s, Village Inn and Bakers Square.
Chairman William Foley is increasing his focus on the housing market after agreeing in May to buy Lender Processing Services Inc. (LPS:US), a former unit, for about $2.9 billion. The deal, which hasn’t yet been completed, will help Foley expand in the business of providing and analyzing mortgage data.
“Our energies are focused on the pending acquisition,” Foley said in the statement. “Portfolio company investments have significant value which may not be fully reflected in our stock price and we believe there are attractive alternatives we can pursue.”
Fidelity National, the largest U.S. title insurer, advanced 2.7 percent to $30.34 at the close in New York. The company gained (FNF:US) 25 percent this year through yesterday, trailing the 28 percent rally in the Standard & Poor’s Midcap 400 Index.
Fidelity National is shifting away from its strategy of acquisitions beyond insurance and financial data. Future free cash flow (FNF:US) will be used to pay down debt and for dividends and buybacks, according to today’s statement.
Corvex Management LP, founded by activist investor Keith Meister, said it acquired 15.5 million shares today through call options, bringing its holding to 18.3 million shares, a stake of about 7.3 percent.
Meister and his fund are pleased with the “decision to focus capital allocation going forward towards the new core business,” they said in a regulatory filing today. The investors said they look forward to discussions with the company’s board and managers.
The insurer made a dining wager in 2009 in a deal tied to the distressed debt of a restaurant company. Fidelity National agreed last year to acquire J. Alexander’s Corp. and O’Charley’s Inc., expanding revenue at the restaurant unit from $400 million at the start of 2012 to more than $1.4 billion by the end of the year. The company owns 55 percent of casual dining company American Blue Ribbon Holdings and 100 percent of J. Alexander’s, which has fancier restaurants.
Last year, then-Chief Executive Officer George Scanlon said there were benefits to expanding the insurer’s restaurant investments. The company had divested stakes in businesses tied to insurance, including a claims-processing business, a flood insurer, and its property-casualty unit.
“They’re never wedded to any of their subsidiaries,” said Ryan Byrnes, an analyst at Janney Montgomery Scott LLC who has a neutral rating on the stock. “The management team is always looking to extract the most value.”
Foley needed alternatives to reinvesting in title insurance because Fidelity National’s market share is so large, Byrnes said. The company in 2010 agreed to sell assets in Oregon and Michigan after the purchase of rival title insurer LandAmerica Financial Group Inc. led to a Federal Trade Commission review into anticompetitive practices. Byrnes said the LPS deal gives Foley another avenue to reinvest in housing-related businesses.
Title insurers use their records and public documents to verify a seller is a property’s true owner and that it is free from liens. The companies collect a one-time premium at the closing of the purchase and pay costs that may arise if someone disputes the new owner’s right to the property.
LPS, which is also based in Jacksonville, has technology that’s used by lenders throughout the mortgage process, from origination to foreclosure. LPS says its technology is used by lenders to handle about 50 percent of all U.S. mortgages by dollar value.
Fidelity National controls 51 percent of Pendleton, Indiana-based Remy, which makes alternators and starters for vehicles. The company added 2 cents to $22.05, and has gained 38 percent this year.
Raymond Quirk was promoted to CEO last month, to replace Scanlon effective Dec. 7 and continue to manage title insurance. Brent Bickett, who had overseen mergers and acquisitions, was named president to oversee companies outside the main operation.
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