Fidelity National, LandAmerica Deal Would Create Largest U.S. Title Insurer

JACKSONVILLE, Fla., Nov 26, 2008 (A. M. Best via COMTEX) -- LFG | Quote | Chart | News | PowerRating -- Just days after calling off a $126 million merger with LandAmerica Financial Group Inc., Fidelity National Financial Inc. said it instead will purchase LandAmerica's primary underwriting units for $298 million in a deal that would create the largest U.S. title insurer.

The deal coincides with LandAmerica's filing for Chapter 11 bankruptcy protection and is subject to approval of that application, as well as a Hart-Scott-Rodino antitrust review and Form A approvals from state insurance regulators. LandAmerica noted the Nebraska Department of Insurance scheduled a hearing on petitions for rehabilitation of primary underwriting units Lawyers Title Insurance Corp. and Commonwealth Land Title Insurance Co. for late Nov. 26.

Under the stock purchase agreement, FNF subsidiary Chicago Title Insurance Co. will acquire Commonwealth for $158.6 million, while fellow subsidiary Fidelity National Title Insurance Co. will acquire Lawyers Title and the smaller LandAmerica subsidiary United Capital Title Insurance Co. for $139.4 million. FNF said it expects the deal could close by late December.

"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," FNF Chairman William P. Foley said in a statement. "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."

LandAmerica filed for expedited review from the U.S. Bankruptcy Court in Richmond, Va., with a Chapter 11 petition that covers its holding company and LandAmerica 1031 Exchange Services Inc. unit. The petition does not apply to other surviving units of the company. LandAmerica also is requesting the court and Nebraska department to grant it customary authority to continue with its normal business operations. The company said it "plans to continue its assessment of strategic opportunities for its remaining businesses" following completion of the deal.

"I am deeply disappointed over the need to file for bankruptcy protection for the LandAmerica holding company and the 1031 company," LandAmerica Chairman Theodore L. Chandler said in a statement. "However, this sale of our principal domestic title operations to Fidelity National in this coordinated Chapter 11 filing and Nebraska rehabilitation action offers our stakeholders the best result available in this brutal real estate, credit and capital market environment."

Initially announced Nov. 10, the proposed merger was called off by FNF late Nov. 21 following a review of business operations at LandAmerica, the third-largest title insurer. The merger had proposed a complex series of debt swaps and liquidity facilities, with FNF's title insurance subsidiaries providing liquidity equal to the statutory book value of LandAmerica's Commonwealth and Lawyers Title units. Proceeds would be used to pay down LandAmerica's revolving credit facility and private placement senior notes.

FNF subsidiary Chicago Title also would have provided additional liquidity to LandAmerica ? which also was to divest itself of its Centennial Bank unit ? through a $30 million stand-by secured credit facility. The companies suggested their total debt would be reduced by $250 million.

On Nov. 25, A.M. Best Co. removed FNF's A (Excellent) Financial Strength Rating from under review, but continued to assign a negative outlook to all of the company's ratings.

"Fidelity's negative rating outlook is primarily based on the title group?s recent unfavorable operating results following the announcement of $262 million in reserve strengthening due partly to higher than expected adverse development of claims from policy years 2006 and 2007, along with a somewhat more conservative estimate of expected claims from the current policy year," A.M. Best said.

FNF posted a $198.3 million net loss in the third quarter, compared with $6.5 million of net income a year earlier, as it strengthened reserves by $261.6 million, took $42 million in realized investment losses and paid $12.5 million in accelerated lease expenses related to closing title and escrow offices.

LandAmerica widened its own quarterly loss from $20.8 million in 2007 to $599.6 million in the most recent quarter, largely on a $462 million write-down of goodwill, other intangible assets, certain investments and deferred tax assets. The company also took a $90 million reserve-strengthening charge and $12 million of exit and termination charges.

(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)

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