For much of the year William P. Foley 2d has voiced frustration over what he calls the stock market’s failure to value Fidelity National Financial Inc. as the financial-technology dynamo it has become.
That frustration even led him to try to spin off the technology-oriented portion of the Jacksonville, Fla., company to get a stock multiple — and deal currency — more in line with other technology companies.
Though that plan has been put on the back burner, Fidelity National, which is also the nation’s largest title insurer, is starting to catch the eye of investors. Its shares surged more than 10% early Tuesday after a published report that a pair of investment firms are considering buying part or all of Fidelity National.
“We think the stock, if not the company, is in play,” said Audrey L. Snell, an analyst at the New York investment bank Brean Murray & Co. Inc. “This is a wonderful franchise. If the public markets don’t recognize that value, perhaps it would attract private investors.”
The development may not be precisely what Mr. Foley, Fidelity National’s chairman and chief executive, had in mind when he formed his plan, announced in May, to spin off its growing technology operation. That plan was shelved after Fidelity National announced a deal in September to acquire the Atlanta payment processor InterCept Inc.
However, The New York Times reported Tuesday that two private-equity companies — Thomas H. Lee Partners LP of Boston and Texas Pacific Group of Fort Worth — have had at least preliminary discussions about taking Fidelity National private. That report has made the company’s future an open question again.
The buyout firms are considering options ranging from a $9 billion acquisition of the entire company to more modest investments in parts of its business, according to the article, which cited unnamed bankers involved in the talks.
Daniel Kennedy Murphy, Fidelity National’s senior vice president of finance and investor relations, would not discuss the newspaper article. He said his company is continuing to digest InterCept, which was bought this month, and will revisit plans next year for a spinoff of its Fidelity Information Services.
A spokeswoman for Texas Pacific likewise would not discuss the article, and a spokeswoman for Thomas Lee Partners did not return a call seeking comment.
Analysts said Fidelity National probably deserves a higher stock price.
“It seems like the market always discounts what this company does,” said Shane Diamant, an analyst at Stephens Inc. of Little Rock.
Since entering the financial outsourcing business in April 2003 by buying Alltel Information Services, Fidelity National has built its technology operations through a series acquisitions. Financial services and software now represent roughly a third of total revenues.
The technology operation’s growth had been expected to increase the company’s stock price, but “it hasn’t really done that,” Mr. Diamant said. Instead, the share price continues to reflect a valuation as an insurance company. (Mr. Foley also has raised that notion in his public comments in the past.)
Ms. Snell of Brean Murray said that $9 billion might not be enough to make it worthwhile to take Fidelity National private. That figure would represent only a 30% premium to Monday’s market price, not accounting for the impact of debt, she said.
That price is “in the same ballpark as my operating price” per share for Fidelity National, Ms. Snell said. “It may not be sufficient to the board and the shareholders.”
Others cautioned that increased debt could hurt Fidelity National’s operations and growth prospects. As of Sept. 30 it had less than $850 million of long-term debt on its balance sheet. This month it said that it had tapped a credit line for $410 million to help pay for the InterCept acquisition.
Bill Bradway, a vice president at the Framingham, Mass., research firm Financial Insights Inc., also expressed concern about a buyout. “It puts a lot of pressure on the financials of the IT servicing company. It reduces, almost eliminates, any room for errors in operations.”
And if Fidelity National no longer had stock trading in public markets, it could lose an important currency for financing further acquisitions, he said. “Is a seller going to want to take equity in a private company?”
