Fidelity National Financial plans to distribute the stock it owns in Black Knight Financial Services to its shareholders as part of a plan to simplify the corporate structure of the two companies and increase Black Knight’s liquidity.
The 83.3 million shares of Black Knight common stock that Fidelity owns — which equates to a roughly 55% stake in the mortgage technology vendor — would be distributed to FNF shareholders on a pro-rata basis.
After the distribution, about 74% of Black Knight’s outstanding shares will be available to the investing public. The remaining 26% stake in Black Knight is held by Thomas H. Lee Partners, the private equity firm that partnered with FNF to acquire Black Knight, then known as Lender Processing Services, for $2.9 billion in 2014.
The tax-free plan will also spin out FNF Ventures, the Fidelity National subsidiary that holds the company’s non-real-estate businesses including the O’Charley’s chain of restaurants, into its own legal entity. Currently, FNF and FNFV are tracking stocks. The maneuver will make FNF and FNFV two separate legal entities.
“We think this spin-off is a catalyst for the stock, as FNF continues to trade at a material discount to its sum-of-the-parts valuation,” Ryan Byrnes, an equity analyst at Janney Montgomery Scott, wrote in a note.
Increasing the liquidity of Black Knight’s stock will make it accessible to institutional investors that typically look for large investment opportunities. It may also bolster Black Knight’s chances of being included in stock indices, the company said.
Simplifying Fidelity’s corporate structure, in particular by refocusing the company on its core title business, may also make FNF stock more attractive because investors and analysts will better understand its operations and performance.
“It has become clear that the complexity of our existing corporate structure is holding back FNF’s share price in general, and the value of our industry-leading title business in particular,” Fidelity National Chairman William Foley II said in a news release Wednesday.
“We look forward to a stand-alone BKFS and the potential value creation that an independent, more liquid BKFS common stock offers for both FNF and BKFS shareholders.”
Foley is expected to remain executive chairman of Black Knight following the deal.
Due to the plan’s tax-free nature, it is subject to approval from the Internal Revenue Service. Pending that approval, Fidelity National expects to complete the plan by the third quarter of 2017.