Fidelity National Financial Inc., which had been preparing for a public offering of its technology unit, now says it plans to keep control of the business.
The Jacksonville, Fla., company announced Wednesday that it plans to sell off a quarter of its Fidelity National Information Services Inc. to a pair of private equity companies. The subsidiary would also take on up to $2.8 billion of debt, much of which would go to finance a dividend of $10 a share that the parent plans to issue to its stockholders next quarter.
Observers say the transaction leaves open the long-term option of revisiting the spinoff plan. Fidelity executives, however, indicated that they no longer are moving toward a complete separation.
"At this point we are intent on maintaining complete management control over FIS, and this would not have been possible under the IPO scenario," William P. Foley 2d, Fidelity National's chairman and chief executive, said in a conference call for analysts Thursday.
The leveraged buyout firms Thomas H. Lee Partners LP of Boston and Texas Pacific Group of Fort Worth would pay $500 million for 25% of FIS. The deal is expected to close this month.
The unit would also enter into as much as $2.8 billion of senior secured credit facilities. Of that sum, $2.7 billion is earmarked for its parent, which would use $1.8 billion to pay the dividend.
Mr. Foley said the dividend would be paid even if the partial sale falls through.
Another $260 million from the transaction would be used to pay down some of Fidelity National's debt, but if the sale falls through those debts will not be paid. Fidelity National would use the remainder of the funds to cover its own expenses and to possibly finance future acquisitions.
The unit, which would reap $600 million from the proceeds of the sale and the remainder of the new debt, plans to pay down $420 million of its own debt.
Mr. Foley said that after evaluating the possibility of a spinoff, Fidelity National concluded that it made more sense to borrow money and have a partial sale.
One of the key advantages he cited: The technology unit would be spared the financial burden associated with assembling a new management team.
"There is significant advantage to having FNF management involved in FIS on a daily basis," he said.
Fidelity National, the nation's largest title insurer, entered the outsourcing market early last year with the purchase of Alltel Corp.'s technology unit. It has since expanded aggressively through a string of deals.
In May it said it would spin off the outsourcing unit in a public offering. The plan was aimed at boosting share prices, but in September, Fidelity National announced yet another deal - for the core processing provider InterCept Inc. - and said it would put the initial public offering on hold while it digested that deal.
These deals have made Fidelity National the nation's second-largest core processing outsourcer, after Fiserv Inc. of Brookfield, Wis. The name Fidelity National Information Services was chosen for the unit in May.
The partial sale plan seems to suggest that Fidelity National is still hoping to raise its share price while retaining control of its technology operations.
Robert Hunt, a senior analyst at TowerGroup Inc., the Needham, Mass., research unit of MasterCard International, said the planned dividend is probably Fidelity National's way of rewarding its shareholders for their support during the costly series of acquisitions.
A partial sale, rather than a full IPO, could indicate that Fidelity National is hoping to maximize its return for the unit, he said. "You do that when you feel that you can't get maximum value just by selling the stock into the market."
However, Mr. Hunt said Fidelity National could be laying the groundwork for an eventual spinoff. Usually in cases like this, "you're trying to create funding on one side for the company you're trying to spin off, and on the other side you're trying to reward your shareholders who went through the experience of acquiring all this."
Mr. Foley said that his company still plans a partial public offering for the unit in the long term, but that such a decision would be made by the two minority stakeholders and would not mean Fidelity National would relinquish control of FIS.
"When they need a liquidity event, we'll agree and do an IPO," but Fidelity National would still keep its shares in the unit, Mr. Foley said.
The timing of a public offering would also be based on Fidelity National's ongoing shopping spree, he said. "If there's another large acquisition that we want to execute, it would probably delay an IPO."
He made it clear, however, that eventually "there will be an IPO of FIS."
Some observers noted that the two private equity companies would be investing a significant amount of money for a noncontrolling share of a very young operation.
However, Jonathan Coslet, a partner at Texas Pacific Group, said in an e-mail to American Banker that FIS falls into the "sweet spot between technology and financial institutions," and that his company sees the deal as a way to invest in both industries.
Al Stinson, Fidelity National's chief financial officer, said during the analyst call that the private investors "wouldn't have paid what they paid if they didn't feel there was a lot of embedded value in FIS."
