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from Local Attorney, Michael H. Wasserman

Thursday, November 27, 2008

FIDELITY & LAND AMERICA - the story continues


"Door Buster" is to Black Friday, as Turkey is to Thanksgiving. And so it will go on the day after the turkey day. Sleep deprived and crowd-worn citizens will set out in hopes of buying the things they want (or think they want, anyway) at a discount to what they had previously been selling for.

Business types (at least certain title insurance types) seem to be more interested in maximizing a four day work holiday this year, so they concocted their own door buster deal yesterday; before adjourning for Thanksgiving. According to news reports, Fidelity is buying LandAmerica's title insurance business after all - after LandAmerica files for bankruptcy protection and sheds off some less desirable assets. LandAmerica will then sell its principal title underwriting units to Fidelity National for a combined $298 million. Chicago Title will buy Commonwealth for $158.6 million, and Fidelity National will buy Lawyers and United for $139.4 million.not all of LandAmerica.

You may recall that on November 7th, LandAmerica & Fidelity announced a merger agreement. (more like a $126 million takeover). Two weeks later, Fidelity cancelled out on the deal during the due diligence period. Yesterday, LandAmerica filed for bankruptcy protection.

How bad were LandAmerica's problems? Fitch Ratings downgraded LandAmerica's financial strength and issuer default ratings and placed LandAmerica and its subsidiaries on "rating watch negative". Now understand that I don't actually know what any of that means, but downgrades from rating services are never good. Especially when your company is also reporting third quarter losses of $600 million and nine month losses of $673 million. Not when stockholders' equity plummet by more than half in that same quarter to $485 million. Not when the New York Stock Exchange suspends trading of your shares (which peaked at more than $106 last June, and plunged to about 25 cents in electronic trade).

And that debt that needed to be trimmed off of the deal to lure Fidelity back to the table?
A $290 million investment in auction-rate securities (ARS) from LandAmericas 1031 exchange business that currently cannot be accessed. (1031 exchanges are tax deferral vehicles used by real estate investors. An intermediary holds the proceeds from the sale of an investment property until those funds are deployed to purchase a replacement investment). Those funds were tied up in toxic debt that could not be freed up to meet cash needs. The 1031 company is also in bankruptcy court, and Nebraska State regulators have intervened as well.

Assuming this deal passes muster with the bankruptcy court, and with the various state regulators, and federal anti-trust concerns, Fidelity will control nearly three quarters of the title insurance market nationally.

The deal may well be completed before the year ends.