I am not surprised that Fidelity called off its acquisition of LandAmerica last Friday. Whether the continued deterioration of the market, undisclosed skeletons in the closet (under reserved claims) or just part of a Bill Foley master plan to permanently weaken a major competitor and cherry pick the leftovers, there were just too many possible problems for this merger to succeed.
LandAmerica's insurance company subsidiaries, Lawyers Title, Commonwealth Title and the others will probably remain in business as a result of the close regulatory environment in which they operate. But they will be smaller.
The holding company has financing and cash flow problems. According to reports it may well end up in bankruptcy. A bankruptcy proceeding would offer Fidelity, First American and others the opportunity to acquire the good assets without any or few of the corresponding liabilities. Acquiring bits and pieces may please insurance regulators and garner less Federal Trade Commission attention as well.
I am paying attention to what happens with LandAmerica's commercial business. Reports are that it is unable to access $290 million of invested assets relating to its 1031 exchange business and is exiting that line. Exchange business is closely tied to the still profitable commercial title business. I have to wonder whether this development essentially eliminates LandAmerica as a player in the big deals. The reinsurance market is also likely to be affected.
What the effect of the failed merger will be on title agents is also uncertain. Those agents that only represent LandAmerica companies may have a problem finding another underwriter in the current environment. Long term, not having two companies control 75 percent of the distribution channel for title insurance, will benefit title agents and their clients.
In the short term the title business is going to be further stressed as regulators, rating agencies and customers evaluate the situation and its effect on the title business.
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