The deal represents a premium of about 74.5 percent based on LandAmerica's closing price of $4.75 on Thursday.
LandAmerica shares soared as much as 79 percent to $8.49 in pre-market trade. Fidelity National shares rose as much as 8 percent.
The transaction has been structured to reduce the combined debt of LFG and FNF by approximately $250 million prior to the closing of the merger agreement. This will be accomplished by FNF's title insurance subsidiaries providing liquidity equal to the statutory book value of LFG's two primary title insurance subsidiaries, Commonwealth Land Title Insurance Co. and Lawyers Title Insurance Corp., immediately prior to the closing of the merger agreement. These proceeds will be used to repay outstanding indebtedness under LFG's revolving credit facility and private placement senior notes and, potentially, existing FNF debt. As a result, FNF anticipates no material change from its current debt to total capitalization ratio of approximately 30 percent.
"We have always had great respect for LFG and we are confident that the combination of our two companies will create the strongest and most financially sound title insurer in the country, with an unrivaled geographic and commercial footprint," said FNF Chairman Bill Foley. "This merger is a tremendous opportunity for FNF and one that we are confident will create significant long-term value for our shareholders."
Based on the Demotech Performance of Title Insurance Companies 2008 Edition, the combined companies will have a market share of 46.3 percent. The pro forma combined investment portfolio and reserve for claim losses were approximately $5.5 billion and $2.6 billion, respectively, as of Sept. 30. Pro forma revenue for the nine months ended Sept. 30 was approximately $5.3 billion.
Foley said preliminary estimates, which must be confirmed during a due diligence period, is that Fidelity will realize at least $150 million in operational cost synergies throughout the combined operations, including the areas of corporate and administrative overhead, direct and agency operations and claims management and processing.
The transaction is subject to certain closing conditions, including LFG shareholder approval, antitrust and state regulatory approvals, the divestiture of Centennial Bank by LFG and the satisfaction of other customary closing conditions. The merger agreement also provides a due diligence contingency for FNF that expires on Nov. 21, during which time FNF will conduct due diligence procedures on LFG's operations and financial condition.
LandAmerica may have been on the verge of bankruptcy. Ted Chandler, LFG's Chairman and CEO, said the unprecedented credit freeze and depressed real estate market negatively impacted LandAmerica's business "to the point that it has become increasingly difficult for company to remain an independent public company."
Chandler will join the FNF board of directors as vice chairman after the closing of the transaction.
Stay tuned to The Title Report for more on this breaking story, including how the deal will impact independent title agents.
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