Competitor is buying Houston title giant
Fidelity National Financial plans to keep the Stewart Information Services brand as companies agree to $1.2 billion deal
Houston-based title insurer Stewart Information Services Corp., one of this region’s largest and oldest companies, is being acquired by competitor Fidelity National Financial in a $1.2 billion deal that will retain the wellknown Stewart brand with plans to expand it on a national level, the companies said Monday.
The combined company is expected to command more than 40 percent of the U.S. title business.
Locally, real estate agents, homebuyers and home sellers won’t notice much of a change, an analyst said.
“People shouldn’t fret over it,” said Patrick Jankowski, senior vice president of research for the Greater Houston Partnership. “When you lose a company like that, it doesn’t have any substantial impact on Houston’s economic growth.”
There will, however, be areas of overlap that could require Fidelity National to sell off parts of the business or reduce the number of employees in certain departments.
Stewart’s back office and support operations will likely shrink, but the goal of the acquisition is to increase market share, not reduce it, Fidelity chairman William P. Foley II said Monday during a conference call with investors and analysts to discuss the acquisition.
“We’re not just looking at this as a transaction to cut a bunch of people, but we’re really looking at it as a transaction to grow our business,” Foley said.
The cash and stock deal comes about four months after Stewart
said it was considering putting itself up for sale as it contended with falling profits related to Hurricane Harvey and a decline in refinancing orders due to rising interest rates.
Stewart, which was founded in 1893 in Galveston, has also been plagued in recent years by activist investors who have pushed for changes at the company. Longtime board members have since been replaced, and a new stock structure was created.
“This is positive for our company,” the company said in a statement to the Chronicle. “Fidelity’s decision is a reflection of their belief in Stewart, our people and the value we bring to our clients and customers.”
Stewart will operate as a standalone brand within Fidelity National. It will have a stronger platform to serve the real estate services market and the resources to support its growth initiatives, the company added.
Jacksonville, Fla.-based Fidelity National is the parent of Fidelity National Title, Chicago Title, Commonwealth Land Title, Alamo Title and National Title of New York.
Foley said the deal should help the company achieve at least $135 million in savings even as it boosts its market share to more than 40 percent.
Fidelity National’s companies had 33.3 percent of the U.S. market share through the third quarter of 2017, while Stewart's underwriters had 10.6 percent, according to the American Land Title Association.
Stewart has 6,000 employees across the company and more than 900 in Houston. CEO Matthew Morris is planning to stay with the company.
The acquisition isn’t expected to affect the housing market in Houston, Jankowski said. He also stressed that public companies frequently change hands.
“It’s always a little bit sad when you see a longstanding Houston company be acquired, but times change,” he said.
Title insurance, a customary part of the residential and commercial real estate transaction business, insures against financial losses caused by title defects. Companies are paid to search property records for issues that could raise questions about a title, such as a property lien for unpaid remodeling work.
Stewart’s history in the business dates back to 1893 when Galveston attorney Maco Stewart, son of legislator William H. Stewart, purchased the Gulf City Abstract Co. and formed Stewart Title Co. Other family members would play major roles in the company’s development.
CEO Morris marks the fifth generation of William H. Stewart’s descendants to lead the company.
In recent years, Stewart has encountered setbacks, financial and otherwise.
Last November, Morris said the company would look for a buyer as its profits declined. The CEO cited Hurricane Harvey, which temporarily halted home purchases across the Houston area, as well as staff departures and a drop in refinancing orders as interest rates rose.
Prior to last year’s announcement, Stewart had made a series of changes resulting from pressure from activist investors who said the board composition creathigh ed conflicts of interest that contributed to the company’s underperformance.
First cousins and former coCEOs Malcolm S. Morris and Stewart Morris Jr. resigned from the board.
The company also created a single class of common stock to replace a dual-share structure. Previously, the company had shares that were not publicly traded and owned by many members of the company's founding family.
The sale to Fidelity National has been approved by Stewart's board, but it is still subject to approval by Stewart's shareholders and regulatory authorities. It is expected to close by the middle of 2019.
The purchase, which includes $109 million of Stewart debt, is subject to other terms. If regulators require the combined company to divest assets or businesses for which revenues exceed $75 million and up to $225 million, the purchase price will be adjusted down to a minimum of $45.50 per share of common stock.
Foley said Fidelity National has identified areas where there is a concentration of market share between the two companies, but he would not disclose their locations.
Stewart shareholders will receive $25 in cash and 0.6 common shares of Fidelity for each share of Stewart common stock at the time closing.
The deal's value is based on Fidelity's March 16 closing stock price. It represents total value per Stewart share of $50.20, a 23 percent premium.
If the deal does not obtain the required approvals and is not completed, Fidelity National is required to pay a reverse breakup fee of $50 million to Stewart.
Fidelity National said it will fund the purchase through a combination of cash on hand, debt financing and the issuance of common stock to Stewart stockholders.
Citi acted as financial adviser to Stewart and Davis Polk & Wardwell LLP acted as Stewart's legal adviser.
Shares of Stewart stock closed up 4.6 percent Monday to $42.61.