NEW YORK (Reuters) - LandAmerica Financial Group Inc LFG.N filed for Chapter 11 bankruptcy protection on Wednesday and agreed to sell its largest underwriting businesses to Fidelity National Financial Inc FNF.N, which withdrew a takeover bid for the title insurer last week.
The New York Stock Exchange said it suspended trading of LandAmerica shares. The shares, which peaked at more than $106 last June, plunged to 20 cents in electronic trade.
LandAmerica, the No. 3 U.S. title insurer and a firm weakened by the U.S. housing slump, said it filed for bankruptcy after Fidelity National withdrew on Friday a $126 million takeover offer extended earlier this month. The company also cited the shutdown of its 1031 Exchange Services Inc unit, which also filed for bankruptcy.
Entering bankruptcy court protection paved the way for LandAmerica to sell two of its principal title underwriting units, Lawyers Title Insurance Corp and Commonwealth Land Title Insurance Co, as well as United Capital Title Insurance Co, to bigger rival Fidelity National for a combined $298 million.
Fidelity’s Chicago Title Insurance Co unit will buy Commonwealth for $158.6 million, while Fidelity National Title Insurance Co will buy Lawyers and United for $139.4 million.
LandAmerica said it would work with the bankruptcy court and regulators to complete the sales next month. Jacksonville, Florida-based Fidelity is the largest U.S. title insurer.
Fidelity National stock, down 30 percent this year, surged 24 percent on the deal news. Shares of rival insurers also soared, with First American Corp FAF.N rising 21 percent and Stewart Information Services Corp STC.N up 17 percent.
Title insurers play a key role in the sale of U.S. real estate by giving buyers confidence that there are no other claims to a piece of property. Business boomed for years, as housing prices and deal activity soared, and LandAmerica’s market value peaked at $1.6 billion last summer.
But Glen Allen, Virginia-based LandAmerica was squeezed by the two-year slump in home sales and falling prices, trends that slashed revenue by more than 40 percent.
Meanwhile LandAmerica’s 1031 business, which helps property sellers avoid taxes by transferring gains toward a like kind purchase, became a victim of the credit crunch. The unit had invested funds not yet transferred into auction-rate securities, debt that has been hard to sell all year.
Meanwhile, Nebraska state insurance regulators filed petitions for rehabilitation for Commonwealth and Lawyers Title, which means they will oversee these businesses until they are sold. Initial hearings are scheduled for Wednesday.
“This coordinated Chapter 11 filing and Nebraska rehabilitation action offers our stakeholders the best result available in this brutal real estate, credit and capital market environment,” LandAmerica CEO Theodore Chandler said.
LandAmerica said that by mid-September, in light of its weak performance, it began searching for a buyer. The company hired JPMorgan Chase JPM.N as its financial adviser and held initial talks with about five potential suitors.
LandAmerica also revealed it had approached one of its largest shareholders about buying it or injecting cash, but was turned down. Reuters data showed that top shareholders at the end of September were Old Republic International Corp ORI.N, Fidelity Investments and Dimensional Fund Advisors.
Last month LandAmerica decided to pursue talks with private equity firms and insurance companies, but Fidelity emerged as the one suitor seen able to complete a deal quickly.
A merger agreement was announced November 7, but within two weeks Fidelity wanted to back out. Over the past week, the two companies negotiated the unit sales announced Wednesday.
LandAmerica said it would continue to review strategic opportunities for its remaining businesses.
Additional reporting by Caroline Humer in New York and Sakthi Prasad in Bangalore; Editing by Lisa Von Ahn and Matthew Lewis
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