First American to Spin Off Businesses; Sees Q4 Loss
BANGALORE (Reuters) - First American Corp (FAF.N), one of the largest U.S. title insurers, said it plans to spin off its financial services business, and forecast a fourth-quarter loss due mainly to costs from California wildfires.
The new entity will include worldwide residential and commercial title operations, home warranty and homeowner insurance businesses, and its trust and banking services.
Following the spin-off, the information services company will consist primarily of the property and mortgage information segments and First American's 75 percent interest in First Advantage Corp (FADV.O).
First American Corp also revealed a plan to "aggressively manage employee counts," and said it would cut operating costs by offshoring processing-related jobs to India and the Philippines.
"We are now challenging all of our operators across all of our information businesses to move at least 40 percent of their workforce offshore, and we think this exercise will drive incremental margin improvement," Chief Financial Officer Frank McMahon said on a conference call.
PiperJaffray analyst Robert Napoli said title businesses were performing very badly as they were tied closely to the housing industry.
Title insurers provide insurance to protect homeowners against property claims.
"We have been hoping for it for some time," Keefe, Bruyette & Woods analyst Geoffrey Dunn said by phone on the spin-off.
Dunn appears to be bullish on the spin-off in the longer term, as he expects to see more efficiency in terms of capital management, capital allocation and other strategic decisions.
Dennis Gilmore, First American's chief operating officer, will be named chief executive of the new entity. Frank McMahon, First American's chief financial officer, will be CEO of the information solutions company. Current Chairman and CEO Parker Kennedy will become executive chairman of both the companies.
The financial services business, to be named First American Financial Corp, will take up the task of paying the dividend.
The transaction is expected to close in the third quarter.
Q4 IN RED
The Santa Ana, California-based company forecast a quarterly loss not exceeding $50 million, hurt by losses from California wildfires, write-downs and higher provisions for claims in its title insurance segment.
Excluding items, the company expects to be marginally profitable for the quarter and report revenue of about $1.9 billion. Continued...
