William P. Foley 2nd is at it again.
Mr. Foley, whose title insurance company, Fidelity National Financial Inc., bought the bank core-processing unit of the telephone company Alltel Corp. and turned it into one of the leading vendors to the financial industry, struck a deal Wednesday to move into the payroll-processing business. Related Link
Geoffrey M. Dunn, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said that Ceridian offers no synergies with Fidelity's other lines of business — such as title insurance and health insurance claims processing — but is the kind of processor with stable revenues that Mr. Foley wants.
"They've been looking for their next big transaction, their next Alltel, and I think they've found it," Mr. Dunn said. Mr. Foley said he thinks so, too.
"Ceridian has a profile similar to that of Alltel Information Services, which we acquired in 2003 and used as the cornerstone in building what is now Fidelity National Information Services, a nearly $10 billion market-cap company," Mr. Foley said in a press release. "We look forward to the Ceridian acquisition and the opportunity it provides for us to continue to create significant long-term value for FNF shareholders."
A Fidelity spokesman did not respond to a request for comment.
This is the third time that Fidelity and Thomas H. Lee have teamed up. Lee and another investor, Texas Pacific Group, bought a 25% stake in the information services unit in December 2004, ending an attempt by Mr. Foley to take the unit public. An additional investor, Evercore Partners Inc., later joined in, but all three sold out in February 2006 when the information services unit did go public by merging with the card processor Certegy Inc.
And in January 2006, Fidelity, Lee, and Evercore teamed up to buy Sedgwick CMS Inc., a Memphis health insurance claims manager. Fidelity took a 40% stake in the company, with the private equity companies owning the rest. Sedgwick has gone on to buy a series of similar processors.
Fidelity, Lee, and Ceridian said they expect to bring in additional investors here as well so Fidelity will own less than 50% of it.
Ceridian had been reviewing its "strategic alternatives" since February under pressure from the activist hedge fund Pershing Square Capital Management LP of New York, which bought a 14.5% stake in it last year.
Ceridian said in a press release that it plans a shareholder vote on the deal by September. A spokesman would not comment further.
Pershing's founder, William A. Ackman, did not respond to a call requesting comment on Thursday.
Mr. Dunn of Keefe, Bruyette said that Ceridian appears to have relatively low profit margins, compared with payroll-processing rivals such as Automatic Data Processing Inc. "There should be significant opportunities for expense savings," he said.
Adam B. Frisch, an analyst at UBS AG, said that Pershing and other large Ceridian shareholders could contest the Fidelity deal.
"We believe the deal was likely sufficiently shopped and any suitors who wanted to participate were probably given adequate opportunity," Mr. Frisch wrote in a note to clients Thursday. But he said the shareholders could pursue courses such as "splitting the company into two parts (HR and Comdata) and exploring acquisition possibilities for each separately."
