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bobliocatt

Jacksonville may get another Fortune 500 company

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Fidelity plans spin-off company

Fidelity National Financial Inc. became Jacksonville's third Fortune 500 company when it moved its headquarters here last summer. Now it may create a fourth.

Fidelity, which had been mainly a title insurance company until a recent expansion into financial processing businesses, announced plans Wednesday to spin off its non-insurance operations into a separate public company that will also be headquartered in Jacksonville.

"Today begins a new chapter in FNF's evolution, one we strongly believe will create two potential Fortune 500 companies, each keenly focused on a strategy for growth and the creation of shareholder value," Fidelity Chairman and CEO William Foley said in a conference call Wednesday.

Under the plan, Fidelity will create a new publicly traded company called Fidelity National Information Services Inc. that will consist of the non-insurance businesses. That company, referred to as FIS, will provide outsourced financial transaction processing and other information processing services. Its operations will include the Jacksonville-based mortgage processing business that Fidelity acquired last year from Alltel Corp.

The title insurance and other insurance operations will remain under Fidelity National Financial, which will be referred to as FNF.

Fidelity moved its headquarters from Santa Barbara, Calif., into the former Alltel building at 601 Riverside Ave. after acquiring Alltel's mortgage business. Last month, the company said it would erect a second 10-story building on adjacent property to accommodate its growth.

FIS filed a registration statement with the Securities and Exchange Commission Wednesday for an initial public offering of up to $500 million in stock in the new company. Because of SEC regulations that require company officials to remain mum after registering an IPO, Fidelity officials said little yesterday. But Fidelity spokesman Daniel Murphy did say the spin-off "has no impact on our plans" to construct another building.

Fidelity, which took on about 1,400 employees when it acquired the Alltel operations, said last month it could add 1,200 more jobs because of its expansion. The company received $12.5 million in city and state incentives last year to move its headquarters to Jacksonville with the promise of adding 750 jobs. But Murphy could not comment on those plans Wednesday.

JEDC Executive Director Kirk Wendland could not be reached for comment Wednesday.

Foley also said he could not comment because of the SEC-mandated quiet period and while he announced some details of the spin-off in the conference call Wednesday, he said he could not take any questions during the call.

Under the plan, FIS will sell stock to the public, with FNF retaining an ownership interest in FIS. After the public sale, FNF will get rid of its ownership interest by distributing shares of FIS to FNF shareholders as a special dividend. The SEC filing did not say what percentage of the stock will be sold to the public and what percentage will be retained by FNF initially.

Foley will become chairman and CEO of FIS and will remain chairman of FNF but not chief executive. Current FNF President Randy Quirk will become CEO.

Other management and board of director appointments will be announced at a later date. But Foley said "I will be the only common member of both boards of directors."

FIS will consist of three business segments: financial institution software and services, lender outsourcing solutions and information products and services. The mortgage processing business in Jacksonville, which handles nearly half of all U.S. home mortgage loans, will be part of the financial institution division.

Fidelity was the 262nd-ranked company on the Fortune 500 list with $7.7 billion in revenue in 2003. According to the SEC filing, FIS's businesses produced $1.9 billion in revenue last year. That's not good enough for the Fortune 500 right now, as number 500 Newmont Mining Corp. had $3.2 billion in 2003 revenue. But FIS has ambitious growth plans.

"The IPO and subsequent spin-off of FIS will allow us to position these businesses for the future and provide a separate publicly traded currency that can be used in its business, including helping to finance future acquisitions," said Foley.

In other words, FIS can grow by issuing stock to buy more processing businesses. Audrey Snell, an analyst at Brean Murray Securities who follows Fidelity, said FIS can get more for its money by offering stock in the transaction processing business, rather than the current Fidelity stock.

"That group, broadly defined, trades at premium multiples to their earnings," Snell said.

FNF will remain the largest U.S. title insurer after the spin-off. While FIS benefits from perhaps getting a higher value for its stock, Foley said its insurance businesses will also benefit from the deal.

"With the newly focused strategy, FNF will have more flexibility in utilizing the significant cash flow from operations," he said. He said FNF could use its extra cash to increase dividends to shareholders or repurchase its common stock, which would make the remaining FNF shares more valuable.

FIS does not intend to pay a dividend in the near future, according to its IPO filing.

Investors Wednesday seemed to think the spin-off will create more value for their current Fidelity shares. Fidelity's stock rose $2.68 to $38 Wednesday.

Fidelity said it expects the distribution of FIS shares to current Fidelity shareholder should occur by mid-2005, but it did not say when FIS will have its initial public offering.

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ABOUT THE COMPANIES

Fidelity National Information Services Inc.

Headquarters: Jacksonville

Business: Provider of technology solutions and processing services to the financial services and real estate industry.

CEO: William Foley

Employees: 12,100 (after spin-off).

2003 revenue: $1.9 billion

Ticker symbol: FIS

Fidelity National Financial Inc.

Headquarters: Jacksonville

Business: Title insurance and other insurance.

CEO: Randy Quirk (following spin-off).

Employees: 28,600 (before spin-off).

2003 revenue: $7.7 billion (including businesses in spin-off).

Ticker symbol: FNF

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Hopefully, other Fortune 500 companies will see Fidelity's success in Jax, and will want to move here. Maybe this could be the start of sometihng really good...

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