Fidelity calls off Landam Merger

"Fidelity National Financial Inc. has called off its plan to acquire troubled rival LandAmerica Financial Group Inc., the companies said Friday, calling into doubt LandAmerica's long-term prospects.

Fidelity and LandAmerica both issued terse statements at 8 p.m. Eastern Time Friday saying Fidelity had exercised its right to back out of the deal during a due diligence period.

LandAmerica lost $599.6 million during the third quarter and was in danger of defaulting on its debts, the company said in a recent regulatory filing.

Fidelity announced an agreement on Nov. 7 to acquire LandAmerica in an all stock deal valued at $128 million (see Inman News story).

Based on their 2007 market share, the combined companies might have controlled about 45 percent of the U.S. title insurance business. By comparison, the nation's biggest title insurer, First American Corp., had a 30 percent market share last year.

But the merger agreement gave Fidelity until Nov. 21 to conduct a due diligence review of LandAmerica's books, and gave Fidelity the option to back out of the deal if it unearthed any surprises.

When plans for the merger were announced, Fidelity Chairman William Foley said the negotiations were held in just days, which didn't allow the company to conduct the required due diligence.

The deal was announced on a Friday. The following Monday, LandAmerica detailed record third-quarter losses and said the company was in violation of financial debt covenants of its note-purchase agreement and credit agreement (see story).

LandAmerica said it was in discussion with creditors to obtain waivers. If not waived, the covenant violations "constitute an event of default under the agreements, giving the lenders the right to declare all principal and accrued interest payable immediately," LandAmerica said at the time.

A declaration for immediate payment under either agreement also would constitute an event of default under LandAmerica's convertible note obligations, the company said, enabling the holders of the notes to demand immediate payment.

A LandAmerica spokeswoman did not immediately return a call Friday evening.

In a statement, LandAmerica Chairman and CEO Theodore L. Chandler Jr. said the company was disappointed with Fidelity's decision to call off the merger. He said the company's attention "remains focused on strengthening LandAmerica's business and exploring strategic alternatives during these incredibly difficult economic times."