Business Context and Reporting Period
Company: Fidelity National Financial, Inc. (FNF)
Filing Type: Form 8-K (Current Report)
Date of Report: May 28, 2013
Event: Entry into a Material Definitive Agreement (Merger Agreement) with Lender Processing Services, Inc. (LPS).
On May 28, 2013, FNF and its subsidiary, Lion Merger Sub, Inc., entered into an Agreement and Plan of Merger to acquire LPS. Upon consummation, LPS will become a wholly-owned subsidiary of FNF. The transaction has been approved by the boards of directors of both companies.
Key Financial Metrics and Transaction Terms
This filing details the structure of the acquisition rather than FNF's standalone operating results for the period. Key financial terms of the Merger Agreement include:
- Consideration per LPS Share:
- Cash Component: $16.625 per share (subject to potential increase by FNF).
- Stock Component: A fraction of FNF Class A common stock based on an Exchange Ratio.
- Exchange Ratio Adjustments:
- If Average FNF Stock Price > $24.215: Ratio is 0.65224.
- If Average FNF Stock Price is between $20.000 and $24.215: Ratio adjusts to fix Stock Consideration value at $15.794 per LPS share.
- If Average FNF Stock Price < $20.000: Ratio is 0.7897.
- Financing Commitments:
- Equity: Up to $430 million committed by funds affiliated with Thomas H. Lee Partners, L.P.
- Debt: $1.0 billion 364-day senior unsecured bridge term loan and an $800 million replacement revolver facility committed by Merrill Lynch, Bank of America, and J.P. Morgan.
- Termination Fees:
- LPS to pay FNF: $37 million (if terminated for a Superior Proposal by an Excluded Party before July 19, 2013) or $74 million (other circumstances).
- FNF to pay LPS: $74 million reverse termination fee (if FNF withdraws recommendation or fails to hold stockholder meeting).
Note: The filing text does not provide specific revenue, profit, cash flow, or margin figures for FNF or LPS for the reporting period.
Material Changes and Conditions
The primary material change is the initiation of the merger process. Consummation of the Merger is subject to the following conditions:
- Approval by holders of a majority of outstanding LPS Common Stock.
- Approval by FNF stockholders for the issuance of shares (if required).
- Expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
- Consent or approval by certain state regulatory entities.
- Effectiveness of the Registration Statement on Form S-4 by the SEC.
- Listing approval of FNF Common Stock on the New York Stock Exchange.
- Absence of a Material Adverse Effect on either party between March 31, 2013, and the closing.
Go-Shop Period: LPS is permitted to solicit alternative acquisition proposals from third parties until July 7, 2013. After this date, LPS is subject to "no-shop" restrictions, except for bona fide proposals received during the Go-Shop Period.
Outlook, Risks, and Contingencies
Management Commentary and Outlook: FNF intends to use the proceeds from the equity and debt financing commitments, along with available cash, to fund the Merger Consideration and related fees. The company plans to file a Registration Statement on Form S-4 and a Joint Proxy Statement/Prospectus with the SEC.
Risks and Uncertainties: The filing highlights several risks that could prevent the transaction or impact future performance:
- Failure to obtain requisite regulatory or stockholder approvals.
- Inability to successfully integrate LPS operations and realize anticipated synergies.
- Adverse changes in real estate activity, interest rates, or the U.S. economy.
- FNF's dependence on distributions from title insurance underwriters.
- Significant competition and extensive government regulation.
Unusual Items: The transaction includes a "Go-Shop" provision allowing LPS to seek superior proposals for a limited period, which introduces uncertainty regarding the final terms or the completion of the deal.
Investor Verification Checklist
- Verify the final Exchange Ratio based on FNF's stock price at the time of closing.
- Confirm the outcome of the LPS and FNF stockholder votes on the Merger Agreement.
- Monitor the status of regulatory approvals, specifically the Hart-Scott-Rodino waiting period and state regulatory consents.
- Review the upcoming Joint Proxy Statement/Prospectus for detailed financial projections and risk factors.
- Track whether FNF elects to alter the consideration mix (increasing cash and decreasing stock) prior to the proxy mailing.
- Assess the impact of the $1.8 billion in committed debt facilities on FNF's leverage ratios post-closing.