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New York rejected Fidelity deal over market share concerns

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New York regulators rejected Fidelity National Financial’s acquisition of Stewart Information Services because the combination would have a dominant share of title insurance in the state.

“A combined market share of approximately 50% would create increased market power in one very large company, with that market power leading to greater profits than price competition and consumer choice,” said a redacted copy of the DFS letter sent to the companies in February signed by Deputy General Counsel Martha Lees. “In addition, New York policyholders will bear the potentially negative consequences resulting from the need for the domestic insurer and its affiliates to repay any debt used to finance the transaction.”

There were $1.12 billion of title premiums written in New York during 2017, according to the Department of Financial Services letter. The various FNF subsidiaries did $338 million, or 30% of the total, while Stewart Title Group did $209 million, or 19%, for a combined pro forma share of approximately $547 million, or 49% of the New York market.

In addition, there were concerns regarding FNF’s control of the market regarding business from independent title agents. Over the last five years, FNF got between 49% and 52% of its business on a national level from independent agents, while Stewart received between 82% and 85%. Given that the combination would have a total share of nearly 50%, “it is not reasonable to expect independent agents would risk their relationship with FNF,” the letter said.

Besides the market share concerns, there was a lack of information regarding the debt needed to close the transaction, which mitigated against approval, the DFS letter said.

FNF agreed to pay $1.2 billion for Stewart in cash and stock; the cash portion would use both cash on hand and debt.

FNF did not have any further comment regarding the transaction. Stewart did not respond to a request for comment.

For 2018, FNF had net earnings of $635 million, down from $794 million one year prior. Stewart reported net income of $47.5 million for 2018, down from $48.7 million in 2017.

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