As it turns out, the Federal Trade Commission put the final nail in the coffin.
The Big Four will not become the Big Three, as Fidelity and Stewart announced Tuesday morning that they would abandon the acquisition deal which first was announced in March 2018.
In the wake of the announcement, Stewart said CEO Matthew Morris would become president of the company as board director Frederick Eppinger takes over as CEO.
The deal originally was beset by problems in February 2019, when the New York Department of Financial Services announced it would not approve the acquisition because of concerns over competition concentration affecting consumer choice. Then Friday, the FTC said it would seek to block the acquisition, largely because of concern over competition in large commercial transactions.
Per terms of the agreement, Fidelity will pay Stewart $50 million for the termination.
“Fidelity National Financial today announced that FNF and Stewart Information Services Corp. have agreed to terminate FNF’s proposed merger with Stewart due to the Federal Trade Commission’s issuance of an administrative complaint seeking to block the merger,” FNF said in a statement.
In the termination agreement signed by the companies, released by Fidelity through a filing Wednesday with the Securities and Exchange Commission, the companies said, “The parties have determined that the termination of the merger agreement is in their mutual benefit.”
After Friday’s announcement, Demotech President Joseph Petrelli told The Title Report the FTC’s decision might spell the end of the acquisition – and it eventually did.
“I think the quick decision will be, we’re done,” he said. “I’d take ‘not going to fight’ as the larger possibility now.”
In a release, Stewart said its board “clearly determined” that leveraging Stewart’s “strong brand, financial position, and valued employees” to grow as a standalone entity will create the greatest shareholder value.
Stewart also said Morris, who has been CEO since 2011, would step down from the role, but remain as president. John Killea, who has been president since 2017, will remain general counsel and chief legal officer, roles he has held since 2008 and 2012, respectively.
“While we were disappointed with the FTC’s decision regarding Stewart’s combination with Fidelity, we are well-positioned to execute on a standalone strategic plan built around growth and profitability,” Stewart Board Chairman Thomas Apel said in the release. “The actions we have taken today are designed to enhance our strength, focus our company on the opportunities before us and build a leadership team with the best mix of experience and expertise to drive value creation. To further support the new direction, we will be actively reviewing the board’s makeup to ensure the appropriate mix of diversity as well as operational and growth-oriented experience.
“Fred’s proven track record of aggressively growing a company and increasing shareholder value while he was CEO at Hanover Insurance Group, coupled with his passion for Stewart’s success, makes him ideally suited to serve as CEO at this critical juncture. We also are pleased that Matthew Morris will remain with the company as president, working with Fred and our leadership team to accelerate our strategic plan.”
Eppinger has been a director at Stewart since 2016 after he retired from his position as CEO at The Hanover Insurance Group.
“I am confident in the strength of the Stewart brand and the people behind it, and look forward to working with our talented team to forge a legacy of a growth and performance-oriented culture that delivers exceptional value creation as a standalone company,” Eppinger said. “I believe the future is bright for Stewart. I see great potential in our ability to enhance performance while leveraging the core strengths of Stewart, its culture and people.”
Eppinger joined the board as part of the agreement Stewart reached with Starboard Value in October 2016. The agreement required Stewart to appoint two new directors who qualify as “independent.” That agreement originally led to the resignation of board members Malcom S. Morris and Stewart Morris Jr., while directors Laurie Moore-Moore and Frank Keating resigned their positions to bring Eppinger and Clifford Allen Bradley on board.
The FTC’s announcement alleged the merger would substantially reduce competition in state markets for title insurance underwriting for large commercial transactions, and in several local markets for title information services.
“Absent competition from an independent Stewart, Fidelity will not need to compete as aggressively on price, coverage, underwriting requirements, or service as it does today,” the FTC stated. “The complaint further alleges that the elimination of Stewart as an independent competitor will increase the ability and incentive of the remaining underwriters to pursue tacitly a more cooperative strategy to the detriment of customers with large commercial transactions.”
New York’s denial, meanwhile, focused on individuals buying title insurance. In a letter to FNF obtained by The Title Report, DFS concluded that state policyholders would be “adversely impacted by the lack of market competitiveness.”
The letter stated that the combined New York market share of nearly 50 percent would create “increased market power in one very large company, with that market power leading to greater profits rather than price competition and consumer choice.”
DFS added in the letter that it would be state policyholders who would bear the “potentially negative” consequences of the acquisition, resulting from the need for Stewart Title and its affiliates to repay any debt used to finance the transaction.
The Title Report will have much more on this announcement throughout the day. Check back at TheTitleReport.com for the latest.