The First American Corp., an $8.5 billion provider of business information, said it will spin-off its title insurance and specialty insurance reporting segments, into a separate public company to be called First American Financial Corp.
The company also announced it expects to report a fourth quarter loss.
The new First American Financial Corp, which will consist primarily of the current property information and mortgage information segments, as well as First American’s 75 percent interest in First Advantage Corp., will remain at the existing holding company, which will be renamed prior to the separation.
The transaction is expected to close in the third quarter.
First American Financial Corp. will include the company’s worldwide residential and commercial title operations, its home warranty and homeowner insurance businesses, and its trust and banking services. This business will include the following:
Title Services: First American Title Insurance Co., First Canadian Title, First Title plc, United General Title and Pacific Northwest Title;
Specialty Insurance: First American Specialty Insurance Co., First American Property and Casualty Insurance Co., and First American Home Buyers Protection Co.; and
Trust and Banking: First American Trust, FSB and First Security Thrift.
Dennis J. Gilmore, First American’s current chief operating officer, will be named chief executive officer of First American Financial Corp. Frank V. McMahon, First American’s current vice chairman and chief financial officer, will be named chief executive officer of the information company. Parker S. Kennedy will become executive chairman of both companies.
“Over the last two decades we have built the preeminent real estate information and title insurance businesses,” stated Kennedy. “We believe that this transaction will unlock the unrealized value of our information businesses, while strengthening the competitive positions of both companies. After the separation, each company will have the financial strength and flexibility to implement its own unique growth strategies, allowing both organizations to refine and refocus their business mix.”
Once the transaction is complete, First American shareholders will own 100 percent of the common equity in both the financial services and the information solutions companies. Both companies are expected to trade on the New York Stock Exchange.
The information solutions company provides mortgage risk analytics as well as property, credit and employment information. This company’s operations will be organized into four reporting groups:
Data & Analytic Solutions, which will include the company’s real property data and analytics, mortgage risk analytics and title plant businesses;
Origination Solutions, which will include the company’s traditional appraisal, broker price opinions and national joint venture businesses;
Servicing & Default Solutions, which will include the company’s tax monitoring, flood zone determination and default-related businesses; and
First Advantage, a risk mitigation and business solutions provider, which will be 75 percent owned by the information solutions company.
First American’s board of directors also has authorized the repurchase of $300 million of the company’s common shares. This is in addition to the $60 million remaining on the $500 million previously authorized.
Additionally, the company has received a financing commitment from Wells Fargo for a $200 million interim credit facility.
In a separate announcement, First American Corp. said it expects to report total revenues of approximately $1.9 billion and an after-tax loss for the fourth quarter of 2007, which is not expected to exceed $50 million. The fourth quarter results will include losses related to catastrophic losses from the California wildfires, write-downs of certain private strategic investments and operational assets, litigation reserves and severance payments. Excluding these items, as well as realized gains from asset sales, the company expects to be marginally profitable for the fourth quarter of 2007.
The company said its operating results in the fourth quarter were negatively impacted by higher provisions for title claims in the title insurance segment. The company estimates that cash provided by operating activities in the fourth quarter of 2007 will exceed $100 million. The company plans to issue its 2007 fourth-quarter and year-end results on Feb. 28, 2008.
Source: First American Corp.
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