Fidelity Plans Spin-Off of Former Alltel, Other Information Units

The nation's largest service bureau for automating loan administration data appears to be headed for its second ownership change in as many years.

Title insurance giant Fidelity National Financial, which less than two years ago bought the unit from Alltel, now plans to spin-off that unit and the rest of its information services business into a new, publicly traded company.

The new company will be named Fidelity National Information Services, or FIS. The initial public offering is expected to raise up to $500 million, though FNF will initially retain a large ownership stake in FIS. But FNF plans to spin-off its ownership stake through a special dividend to shareholders next year.

The special dividend is expected to occur by the middle of next year, FNF chairman and CEO William Foley said during a conference call last week. FNF acquired Alltel's financial services business for just under $1.1 billion in early 2003.

FIS will consist of three segments: Financial Institutions Software and Services, Lender Outsourcing Solutions and Information Products and Services. FISS, which will include the mortgage processing and outsourcing business, will be the largest of those three units. The LOS unit will include loan facilitation and default-management services.

Completion of the spin-off of FIS is contingent upon several factors, including a favorable tax ruling from the IRS, the company said.

Mr. Foley will become chairman and CEO of FIS following the public offering. Thereafter, he will remain chairman of FNF, but Randy Quirk will assume the role of CEO at FNF.

Mr. Foley said that he will be the only common member on both boards of directors after the spin-off.

"Today we begin a new chapter in FNF's evolution, one we strongly believe will create two potential Fortune 500 companies, each keenly focused on its strategy for growth and accretion of shareholder value," Mr. Foley said.

He said that Fidelity's bank and lender processing, outsourcing and real estate information businesses have grown internally as well as through acquisitions in recent years.

The IPO and spin-off of FIS will provide a separate, publicly traded currency that can be used in FIS' business, including helping to finance future acquisitions, Mr. Foley said.

"FNF will focus on its leading market position in the title insurance industry, as well as growing its other specialty insurance businesses," Mr. Foley said.

He said FNF, with a recent acquisition in Florida, is now the top title insurance firm in California, Florida, Texas and New York, which combined, account for about half of all real estate transactions in the nation. In addition, the spin-off allows FNF to consider increasing its quarterly dividend and growing its share repurchase program to increase shareholder value, he said.

FIS intends to use about $250 million of net IPO proceeds to fund a dividend payment to FNF, which will be declared prior to the completion of the offering. FNF intends to use those dividend proceeds to pay down existing debt.

After the transaction, FNF will consist of two segments, Title Insurance and Specialty Insurance. The specialty unit will include flood insurance, home warranty and homeowners insurance.

Moody's Investors Service and Standard & Poor's both affirmed the spin-off will have no immediate impact on the debt ratings of FNF.

S&P noted that as of March 31, the title insurance and related products contributed about 75% of FNF's revenue. The company has liquid assets in excess of $3 billion, the rating agency said.

S&P estimates that FNF and its title subsidiaries will have about 30% market share in direct title premiums written this year.

Moody's said the transaction has no immediate negative implications for the ratings of Fidelity National Financial.

Moody's did express concern, however, about the reduction in earnings diversification for FNF and the "fundamental volatility of the title insurance industry."

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