May 28 (Bloomberg) -- Fidelity National Financial Inc., the largest U.S. title insurer, agreed to acquire its former unit, Lender Processing Services Inc., to expand in the business of providing and analyzing mortgage data.
The cash-and-stock deal values LPS at $33.25 per common share, or about $2.9 billion, Jacksonville, Florida-based Fidelity National said today in a statement. LPS, also based in Jacksonville, closed at $29.11 on May 22, before it was first reported that Fidelity National was in talks to acquire the firm.
Fidelity National is expanding in housing-linked businesses amid a recovery in the U.S. real estate market. LPS has technology that’s used by lenders throughout the mortgage process, from origination to foreclosure.
“This combination will create a larger, broader, more diversified and recurring revenue base for FNF and makes us the nation’s leading title insurance, mortgage technology and mortgage services provider,” Fidelity National Chairman William Foley said in the statement.
LPS says its technology is used by lenders to handle about 50 percent of all U.S. mortgages by dollar value. The firm’s biggest customers are Wells Fargo & Co. and JPMorgan Chase & Co., according to a regulatory filing.
“The old way in which banks addressed their mortgage businesses, which was heavy on paper and people, is being replaced with technology,” Mark Palmer, an analyst at BTIG LLC, said by phone. “Those functions are being outsourced and that’s where LPS comes in.”
Fidelity National plans to pay for LPS half in cash and half by issuing about 57.4 million shares of stock to LPS shareholders. The terms could change based on FNF’s stock price, and the deal will probably be completed in the fourth quarter, according to the statement.
In a 2006 reorganization, Fidelity National split off a business called Fidelity National Information Services Inc. That entity gave investors half a share of LPS common stock for each Fidelity National Information share they owned in 2008. LPS shares closed at $33 on July 2, 2008, the day of the spinoff.
“We have significant experience and familiarity with LPS from our previous ownership of these businesses,” Foley said.
The transaction is expected to boost Fidelity National’s earnings by 11 percent compared with 2012, Foley said. After the deal is completed, Fidelity National will combine its ServiceLink unit with LPS in a new holding company and sell a 19 percent stake in that business to Thomas H. Lee Partners for $381 million, according to the statement.
Under the terms of the deal, LPS is permitted to solicit other buyers through July 7. If LPS receives a better offer and terminates the deal during that period, there is a 1.25 percent breakup fee, according to the statement.
LPS gained 1.8 percent to $33.49 at 4:15 p.m. in New York. Fidelity National slipped 0.6 percent to $26.03, trimming its gain this year to 11 percent.
Bank of America Corp. and JPMorgan were financial advisers on the deal and provided committed financing to Fidelity National. LPS’s bankers were Credit Suisse Group AG and Goldman Sachs Group Inc.
Title insurers like Fidelity National and First American Financial Corp. use their records and public documents to verify a seller is a property’s true owner and that it is free from liens. The companies collect a premium at the closing of the purchase and pay costs that may arise if someone disputes the new owner’s right to the property.
Fidelity National has invested in businesses ranging from restaurants to auto parts. It announced an agreement in 2012 to buy J. Alexander’s Corp. and take its dining unit public in a deal valued at $72 million. It also agreed to buy restaurant chain O’Charley’s Inc., valuing the target company at more than $200 million.
Thomas H. Lee has been involved with the companies before. In 2005, an investment group led by Thomas H. Lee and Texas Pacific Group purchased a 25 percent stake in Fidelity National Information, according to a statement on Thomas H. Lee’s website.
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