Title insurer Fidelity National Financial Inc (FNF.N) said it will buy Lender Processing Services Inc LPS.N for about $2.9 billion in cash and stock to grow its mortgage servicing business.
FNF said the offer, which works out to $33.25 per LPS share, represents a premium of 19 percent to the average 30-day closing price of LPS shares. LPS shares were up about 3 percent at $33.90 in early trade.
LPS shares have risen just over 13 percent since the Wall Street Journal reported on Wednesday that a deal was in the works.
The insurer said it would pay half the deal value in cash and the rest in FNF stock, subject to some final adjustments.
FNF, which owns a number of restaurant chains, an automotive business and a payment solutions business apart from its core insurance businesses, has been modeling itself as a mini Berkshire Hathaway Inc (BRKa.N) (BRKb.N).
The insurer said the deal values its shares at $25.48, which represents an exchange ratio of 0.652 shares per LPS share.
FNF expects to issue about 57.4 million shares, or 20 percent of its diluted outstanding shares, as the stock component of the deal.
The company said it plans to merge its ServiceLink business with LPS, and sell a 19 percent stake in the combined company to private equity firm Thomas H. Lee Partners for about $381 million.
"We have set a target of $100 million for cost synergies and are confident that we can meet or exceed that goal," FNF Chairman William Foley said in a statement.
FNF said the deal would add 11.3 percent to its pro-forma 2012 net earnings.
"We have significant experience and familiarity with LPS from our previous ownership of these businesses. This combination will create a larger, broader, more diversified and recurring revenue base for FNF," Foley said.
LPS was spun off in 2008 from Fidelity National Information Services Inc (FIS.N), which was formed in 2006 in a merger between an FNF unit and Certegy Inc.
Bank of America Merrill Lynch and J.P. Morgan acted as financial advisers to FNF, while Credit Suisse Securities and Goldman Sachs advised LPS.
The deal, which is expected to close in the fourth quarter, includes a "go-shop" period through July 7 and includes a break-up fee of about 1.25 percent of the total value if LPS terminates the deal for a superior offer.
FNF, which has a market value of about $5.7 billion, posted a higher first-quarter profit earlier this month, as it earned more premiums from its direct title insurance business.
FNF shares were up 3 percent at $27 on Tuesday morning on the New York Stock Exchange.
(Reporting by Tanya Agrawal in Bangalore; Editing by Roshni Menon)