Santa Ana’s First American Corp., likely the oldest company in Orange County, is set to become close neighbors with the area’s newest multibillion-dollar business.
First American, OC’s second-largest company with yearly sales of $8 billion, said last week it’s pulling the trigger on a spinoff that’s been in the works for more than a year.
The company plans to separate its core business providing title insurance for homes and other real estate from its growing data division.
Technically, the biggest part of First American,title insurance,is the spinoff.
The company’s title and other insurance businesses are set to become a newly created public company called First American Financial Corp.
The business writes policies protecting buyers of homes and other real estate from claims contesting ownership. First American also offers home, home warranty, lender and other types of insurance.
First American’s remaining businesses, including its property and mortgage information services,as well as its 75% interest in St. Petersburg, Fla.-based First Advantage Corp.,are set to stay with the existing holding company, which is to be renamed.
Both companies will stay in Santa Ana, at First American’s distinctive 500,000-square-foot, eight-building campus that runs alongside the Costa Mesa (55) Freeway.
Each is expected to trade on the New York Stock Exchange once the spinoff is done, which should wrap up in the third quarter. The title and insurance spinoff will keep First American’s “FAF” ticker symbol.
The title and insurance businesses did about $6.3 billion in revenue in the past year, which likely would keep the spinoff at the No. 2 spot among local public companies, after Santa Ana’s Ingram Micro Inc. and its $35 billion in sales.
|
|
First American HQ: both companies set to stay in Santa Ana |
What First American calls its “information solutions” business,which executives long have felt is undervalued and misunderstood by Wall Street,did about $2.3 billion in revenue in the past year. That would place it at around the No. 10 spot among OC’s public companies.
‘Show the Value’
The deal is “finally going to show the value of (that) business,” Chief Executive Parker Kennedy said.
The information business provides data to lenders, real estate agents, appraisers and others. First American also provides credit checks and other data services.
Wall Street seems to like the move.
First American’s shares, which have slumped amid the housing downturn, rose about 10% on the news last week with a recent market value of about $3 billion.
The information business “is an area still focused on acquisition expansion,” said Geoffrey Dunn of New York’s Keefe Bruyette & Woods, in a research report.
On its own, the business “potentially has a stronger equity currency with which to pursue additional acquisitions,” he said.
The title and insurance spinoff is expected to have a market value of about $2.4 billion, according to Dunn. The information business could be worth about $1 billion, he said.
Locally, the move won’t have a dramatic effect on the roughly 2,600 people who work at First American’s headquarters, executives said. The company hasn’t disclosed how many local employees will be divided between each company once the spinoff is complete.
“It’s going to be business as usual in Santa Ana,” said Kennedy, the great-grandson of company founder C.E. Parker. “The two companies already operate very independently. The only difference is that we’ll have two large companies in Santa Ana.”
Wall Street has been awaiting a spinoff from First American since early last year, after the $100 million buy of Sacramento software maker CoreLogic Systems Inc., the company’s largest acquisition.
The spinoff took longer than expected, Kennedy said.
“In August, when the subprime issues developed, we thought that was the time to focus on running the business and not restructuring,” he said. “That slowed us down a little bit.”
Succession Plan
The move clears up succession plans for a business that has been family-run since its founding in 1889.
A successor for Kennedy had never been discussed publicly. But most insiders believed the two most logical choices to take over were Frank McMahon, First American’s vice chairman and chief financial officer, and Dennis Gilmore, the company’s chief operating officer.
Now it turns out both Gilmore and McMahon will become chief executives.
Gilmore will head up First American Financial and its title and insurance business, while McMahon will be chief executive of the existing holding company, which inherits the information business.
The appointments were logical choices, but who’s leading what is a bit of a surprise.
Gilmore’s been heading up First American’s information business and oversees operations dominated more by Ph.D.s than real estate types. Unlike most other First American executives, his office is in a different building at the Santa Ana campus.
Most assumed that if a spinoff were to come, Gilmore would continue to lead the information business, while McMahon, who joined the company in 2006 from Lehman Brothers Holdings Inc., would remain involved in title operations.
Just the opposite ended up happening.
Growth Plans
The executive moves make sense based on what each business’ growth plan is, according to Kennedy.
“Dennis has a real rich background, including with the title company,” Kennedy said. “What he did with the data companies is relevant to the title company. A lot of the technology (improvements) haven’t worked their way into the title business. You’ll begin to see that soon. There’s a lot of earnings power there.”
Of the two companies, the company’s information business is likely to see the most expansion in the next few years, a role McMahon is better suited for, Kennedy said.
“A big part of (growth) is capital management and structuring, acquisitions and borrowing money,” he said. “Frank has great experience with that,he was an investment banker for over 15 years. He’ll be the perfect CEO.”
Kennedy will become executive chairman of both companies. He says he doesn’t see himself stepping back from the business he’s headed up since 1989, though now he’ll be acting in more of a traditional chairman role.
“They don’t need help running the companies. I’m there to assist and to deal with the board,” he said.
First American has cut about 2,500 jobs in the past year. With the spinoff, there’s no plans for further job cuts at First American’s headquarters, Kennedy said.
If anything, there could be some local additions, including some executive positions, he said.
Each company now is looking for chief financial officers with McMahon’s promotion.
