Santa Ana’s First American Corp., one of Orange County’s oldest companies, is set to see the biggest shake-up in its 120-year history next week.
A spinoff of First American’s core title insurance operations from the company’s information services division is expected to take place as early as June 1—about two and a half years after plans for the split were first announced.
“We’re ready to go,” said Parker Kennedy, First American’s chief executive.
The spinoff is set to create two local publicly traded companies: First American Financial Corp., which will include the company’s title insurance business and a few others, and CoreLogic Inc., which will be the home for most of the company’s data and analytics business.
The combined businesses of First American currently count a market valuation of $3.5 billion, which is up nearly 40% from a year ago.
First American Financial, the country’s second-largest title insurer with annual revenue of about $4 billion, is the spinoff in the transaction and is expected to be valued at close to $2.5 billion post split.
CoreLogic, which sees sales of about $2 billion annually, should in the near-term be the smaller of the two companies in Wall Street’s view with about a $1 billion valuation. It could possess the larger opportunity for growth.
The spinoff will be the largest OC’s seen in more than a decade.
The last large local deal of this type was in 2002, when Santa Ana’s Advanced Medical Optics Inc., a maker of contact lens care and eye surgical products, was spun off from Irvine-based drug maker Allergan Inc. in a deal valued at about $700 million.
Two years before that, Chicago-area healthcare company Baxter International Inc. spun off Irvine-based Edwards Lifesciences Corp., which was valued at about $800 million at the time of that transaction.
CoreLogic will be starting operations armed with nearly $400 million in cash. It plans to use a good part of that war chest to pay for acquisitions, officials said.
“We need to put our cash to work,” said Buddy Piszel, CoreLogic’s chief financial officer.
First American Financial won’t be shying away from deals, either, said Dennis Gilmore, the company’s new chief executive.
“It’s time for the company to focus on growth,” Gilmore said.
Gilmore, along with Piszel and Anand Nallathambi, CoreLogic’s new chief executive, spoke at an investor and analyst conference this month in preparation of the spinoff.
Deal Delay
The three spoke about the timing of the spinoff, which was pushed back as the real estate mortgage markets—a mainstay of First American’s business—hit the skids.
The process of splitting up the company went “pretty much as we expected, but we never expected the market (to act as it did the past few years),” Kennedy said.
First American opted to put the split on hold and focus on cutting operating expenses until the market stabilized.
It isn’t quite there yet, but executives are betting on steady business in a “trough” market, said Piszel, who was the finance chief at government-sponsored mortgage buyer Freddie Mac before joining First American last year.
“You’d like to hit (Wall Street in) a real good market, but this market is good enough—it’s a little choppy, but OK,” Kennedy said.
CoreLogic is predicting flat business this year due to ongoing issues in the real estate and mortgage markets. In 2011 and 2012, when modest improvements in the market are expected, CoreLogic’s predicting annual revenue growth of 5% to 8%, officials said.
Likewise, First American Financial is expecting slow growth this year, but thinks it can see pretax profit margins for its title operations as high as 10% by 2012, assuming the housing and mortgage markets don’t take another tumble.
The past two years, “we’ve taken advantage of a bad market,” by cutting costs and recapitalizing the company’s title insurance business, Gilmore said.
“We’re going to do well regardless of the market,” Gilmore said. “It’s time for us to move on.”
Already, the planned split’s effects can be seen at First American’s distinctive office campus that runs along the Costa Mesa (55) Freeway, where more than 2,000 employees are based.
CoreLogic’s name has been put on top the one building at the campus that’ll serve as its headquarters, at 4 First American Way. It will also be taking up space at a nearby Santa Ana office tower, at 2 MacArthur.
First American Financial operations will remain in four neoclassical-looking buildings on the campus.
With the changing of the name, also comes a changing of the guard.
Kennedy, who counts family ties to the company’s founder, C.E. Parker, will be taking on more of an advisory role at the two companies after the split.
“I’ll be the chairman of both and the chief executive of neither,” said Kennedy, who has headed up the company since 1993.
He took over the chairman role from his father, Donald Kennedy, in 1999.
“I’ll be an active chairman, and will help wherever I can, but I’ll try to stay out of everyone’s hair,” Parker Kennedy said.
Veterans
Having Gilmore and Nallathambi—both longtime company employees—at the helms of each company is helping the transition, according to Kennedy.
“I really like the two guys that are stepping into the chief executive roles,” he said.
On board with the split now, the elder Kennedy initially preferred that the company remain a single entity, as did Parker Kennedy.
“Five years ago we thought we could keep the company together” and that Wall Street would place a bigger value to CoreLogic’s line of business, Kennedy said. “But the markets never did. Once that became clear, we decided to move ahead.”
As of last week, the two companies were still aiming for a June 1 spinoff date. Through mid-May, the spinoff has received approvals from all the necessary regulatory agencies, save one insurance-related issue.
“It’s essentially complete,” Piszel told analysts this month.
“If we miss that date, it’s not because of any (big issue), it’s just because the regulators didn’t get it over the finish line (in time),” Piszel said.
Upon completion of the transaction, CoreLogic will have about 10,000 employees worldwide, while First American will have 15,000 employees.
