Two months after setting itself up as a holding company with majority ownership in two publicly traded companies, Fidelity National Financial Inc. is tearing the structure down.
The Jacksonville, Fla., holding company announced a complicated plan Thursday to spin off its 51% stake in the technology company Fidelity National Information Services Inc. and distribute its 80%-plus stake in the title insurer Fidelity National Title Inc. to shareholders.
When the dust finally settles, the three interrelated public companies would become two completely separate ones, with separate stock that William P. Foley 2d, the chairman of all three Fidelity companies and the chief executive of the holding and title companies, said could be used to pursue further acquisitions.
Three years ago Fidelity National Financial was focused solely on the title insurance business, but it created a powerful banking technology unit through a long series of acquisitions. In the past two years the holding company has undertaken several transactions - partially spinning off the technology and insurance units and selling a stake in the technology unit - aimed at driving up shareholder value.
But the market has failed to respond as the holding company had hoped. Mr. Foley said during the holding company's first-quarter earnings conference call that the new plan has the same goal. He estimated that the process would take 90 to 150 days to complete.
"We have always been committed to maximizing shareholder value for the benefit of the company and its shareholders, and this set of transactions is another example of that commitment," Mr. Foley said.
Currently, the holding company currently has several assets: its stakes in the technology and title insurance companies; a 40% stake in the insurance claims manager Sedgwick CMS Inc.; and some specialty insurance operations. It would sell the Sedgwick stake and the insurance operations to the title company, and then hand over its entire stake in that company to the holding company's shareholders through a tax-free stock distribution.
That would leave the holding company with only its stake in the technology company. Those two companies would be combined through a tax-free swap of the holding company's shares for the technology company's. The technology company became a public company in February when it merged with the transaction processor Certegy Inc.
The title company would reclaim the Fidelity National Financial name, according to the plan.
Mr. Foley said the separation would give the technology company more freedom to pursue acquisitions, allow its stock to trade at a higher earnings multiple, and enable it to be included in stock indexes, which would otherwise shun it.
He pointed out that the Brookfield, Wis., core processor Fiserv Inc.'s stock is a component of the Standard & Poor's 500 index. Fidelity National Information Services' stock might qualify for that index, or for the S&P MidCap 400 index, he said.
More to the point, "FIS will have a far greater public float and will be able to use its shares to fund or partially fund acquisitions," Mr. Foley said.
Mr. Foley will be chairman and CEO of the title company, and executive chairman of the technology company.
The market responded well to the plan. Shares in the holding company climbed 24.32% Thursday, to close at $43.50 and Geoffrey M. Dunn, an analyst at Keefe, Bruyette & Woods, applauded the plan.
Investors had refused to give the three interrelated companies comparable valuations to their competitors, Mr. Dunn said in an interview. "That was the No. 1 issue that we encountered in talking to clients about the stock."
He calculated that the holding company had traded at a discount of as much as 22% to his sum-of-the-parts fair-value estimate.
The holding company's management team has long felt its stock was undervalued and has been willing to pursue deals to change that, Mr. Dunn said. "The company's goal has always been, and will continue to be, to build shareholder value."
Both the technology company and the title company have set up committees to negotiate the terms of the plan with the holding company. Mr. Foley said that he envisioned a one-to-one exchange ratio for the technology company's shares, but that the outcome would be the result of negotiations.
"It will be up to the special committees to figure that out," he said. "Sometimes there is a discount from one-to-one. Sometimes there is a control premium."
The pricing is less of a concern when it comes to the title company, since it would be merging with the holding company under the plan.
The holding company "is not going to be real exercised about getting the last dollar out of that valuation," Mr. Foley said.
